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The Securities and Exchange Board of India (SEBI) introduced a fresh set of reforms on Wednesday, targeting multiple aspects of the capital market with an eye on improving investor participation, streamlining regulations, and fostering growth for startups.

Among the most significant measures are changes affecting startup employee stock options (ESOPs), voluntary delisting rules for public sector undertakings (PSUs), expanded flexibility for alternative investment funds (AIFs), and relaxed requirements for foreign investors purchasing Indian government bonds.

New ESOP Norms Bring Relief to Startup Founders

One of the standout announcements from SEBI’s meeting, led by Chairperson Tuhin Kanta Pandey in his second board gathering, was the decision to allow startup founders to continue holding ESOPs even after their firms list on stock exchanges. Previously, founders were categorised as ‘promoters’ upon the filing of an IPO, automatically disqualifying them from receiving ESOPs, reported Livemint.

Recognising the vital role founders play—often accepting equity over salaries to build companies—SEBI’s move ensures their interests remain tied to shareholders well into the firm’s public journey. The regulator emphasised that the Esops help provide an incentive to founders to drive long-term growth. However, to prevent potential abuse, SEBI has introduced a mandatory one-year cooling-off period between granting ESOPs and filing for an IPO, curbing the risk of last-minute share allocations prior to listing.

Voluntary Delisting of PSUs to Expedite Government Disinvestment

In a significant shift to existing norms, SEBI approved a new framework enabling PSUs to voluntarily delist, subject to shareholder consent and several checks. Historically, delisting public sector entities has been an arduous process, often limited by regulatory hurdles. The revised framework aligns closely with the government’s strategic disinvestment programme, which aims to reduce its stake in state-run companies.

With the government maintaining controlling interests in many PSUs, these changes are expected to accelerate its divestment plans. SEBI noted that the new framework could expedite government exits and improve the efficiency of the disinvestment process.

AIF Co-Investment Rules Liberalised for Larger Investors

SEBI also introduced enhanced provisions for alternative investment funds (AIFs), allowing them to offer co-investment opportunities through specially structured co-investment vehicles (CIVs). This adjustment will enable institutional investors to make additional targeted investments in the same unlisted companies where AIFs already hold stakes, thus broadening their exposure to select high-potential deals.

The CIVs will operate as independent schemes under the umbrella of AIFs, offering greater structural flexibility. Furthermore, SEBI has given fund managers the ability to provide advisory services across different investor classes, regardless of existing fund holdings in listed securities, aimed at enhancing operational capabilities and broadening advisory functions.

Simplified Path for Foreign Investment in Sovereign Bonds

In a move to attract more foreign portfolio investment into Indian sovereign debt, SEBI announced a streamlined regulatory framework for FPIs investing solely in government bonds. Since sovereign debt carries lower risk, the new rules simplify registration and compliance requirements for global investors. This step is part of a larger strategy aimed at making India’s capital markets more appealing to conservative, long-term international investors seeking stable returns.

Settlement Path Considered for NSEL Broker Cases

The board also discussed the long-standing National Spot Exchange Limited (NSEL) case involving multiple commodity brokers. With over 300 show-cause notices issued and input from the Securities Appellate Tribunal (SAT), SEBI is evaluating whether these cases can be resolved under its consent regulations, offering a possible path towards settlement for the involved brokers.