Economy & BudgetImportant2025-06-18

SEBI Approves Major Capital Market Reforms

Why focus: GS3 Economy — revised Angel Fund limits and Social Stock Exchange norms are classic numeric traps for Prelims finance MCQs.

In News

What Happened

On June 18, 2025, during its 210th board meeting, SEBI approved sweeping capital market reforms. Key measures include allowing equity shares from Compulsorily Convertible Securities (CCS) in Offers For Sale (OFS), reducing the Angel Fund minimum investment limit to Rs 10 lakh, and expanding the Social Stock Exchange (SSE) framework. Additionally, founders are now permitted to retain ESOPs when taking their startups public.

Why It Matters

These reforms make the Indian capital market highly startup-friendly and actively encourage 'reverse-flipping' (Indian startups relocating their incorporation back to India). Lowering investment thresholds broadens investor participation, while easing IPO norms and expanding the SSE helps both new-age tech companies and social enterprises raise funds more efficiently.

Background

History & Context

Previously, complex ownership structures involving CCS—favoured by venture capitalists—faced regulatory hurdles during IPOs, as converted shares were ineligible for OFS without a mandatory holding period. Indian startups attempting to relocate back to India struggled with these rigid IPO norms. Furthermore, the Social Stock Exchange (SSE) saw poor initial traction due to high compliance burdens, and Angel Fund participation was restricted by steep investment thresholds.

What Changed

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Offer For Sale (OFS) Eligibility: BEFORE, equity shares arising from the conversion of Compulsorily Convertible Securities (CCS) were not eligible for the OFS one-year holding period exemption. NOW, they are eligible, allowing early investors to exit more easily during an IPO.
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Founder ESOPs: BEFORE, founders classified as promoters had to forfeit their Employee Stock Ownership Plans (ESOPs) before filing the Draft Red Herring Prospectus (DRHP). NOW, they can retain and exercise ESOPs if they were granted at least one year prior to the filing.
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Angel Funds: BEFORE, the minimum investment limit for angel investors was higher (₹25 lakh). NOW, Accredited Investors can participate in Angel Funds with a significantly reduced minimum investment limit of ₹10 lakh.
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Social Stock Exchange (SSE): BEFORE, eligibility criteria were narrow and restrictive. NOW, the framework has been broadened to include a wider range of Non-Profit Organizations (NPOs), such as registered trusts and societies, making the platform more inclusive.

Prelims Angle

NCERT Connection

This connects directly to Class 12 Business Studies Chapter 10 (Financial Markets), specifically the 'Primary Market' and methods of floatation. The 'Offer for Sale' (OFS) is a fundamental mechanism where existing securities are offered to the public; SEBI's regulatory updates modernise this concept to accommodate complex startup funding instruments like CCS.

Practice Questions

Q1

Correct Statement(s)

With reference to the SEBI capital market reforms approved at its 210th board meeting, consider the following statements: 1. Equity shares arising from the conversion of Compulsorily Convertible Securities (CCS) are now eligible for Offer for Sale (OFS) exemptions. 2. The minimum investment limit for Angel Funds has been increased to ₹50 lakh to limit risk exposure. Which of the statements given above is/are correct?

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