MUMBAI: The Securities and Exchange Board of India ( Sebi ) approved sweeping changes proposed by the Uday Kotak panel on improving corporate governance standards such as splitting the post of chairman and managing director, tighter rules for independent directors, enhanced disclosure of related-party transactions and mandatory secretarial audits for listed entities and their material subsidiaries.“Out of 80 odd recommendations (of the Kotak panel), 40 were accepted without modification, 15 with modifications, eight were referred to government and other departments,” Sebi chairman Ajay Tyagi told reporters after the board meeting on Wednesday.About 18 suggestions were rejected, he said, including those on sharing information with promoters and significant shareholders, an increase in the number of independent directors on board, minimum compensation to independent directors and more board meetings.The Sebi committee was set up in June 2017 to review corporate governance rules since the last such exercise had been conducted more than a decade before.The panel, which submitted its report on October 5 last year, had suggested the implementation of its proposals in phases. The regulator has proposed to effect the splitting of chairperson and managing director posts, so that both are not held by one person, from April 1, 2020, for the top 500 companies. Most of the changes will be effective April 1, 2019, and April 1, 2020.“The recommendations accepted are not controversial, and many which should be best practices rather than law have rightly been discarded,” said Sandeep Parekh, founder of Finsec Law Advisors.“The split between chairman and MD, however, will provide false comfort to investors that they have a guardian angel sitting, protecting their interests, while the fact of the matter is that the chairman will be beholden to the promoters for appointment, pay and immediate removal. This could have been avoided.” The regulator said at least one woman independent director should be appointed by companies. This will have to be done by April 1, 2019, by the top 500 companies. Besides, shareholder approval will be needed for making royalty or brand payments to related parties exceeding 2% of consolidated turnover.JN Gupta, who was part of the Kotak panel, said recommendations referred to other regulators should be implemented at the earliest.“It is a good start. However, as a member of the committee, I would have been happy to see all recommendations approved,” Gupta said.“Sebi in its wisdom has taken a decision taking into account feedback and interests of all stakeholders. We must bring Indian governance standards not only on par with the best in the world but take a leadership position as well.”The board also approved the proposal to impose restrictions on algorithmic trading by introducing a congestion charge for a prescribed slab on trades, make co-location facilities affordable by allowing brokers to share them and provide tickby-tick data feed to all trading members free of charge.“Under the penalty framework for order-to-trade ratio (OTR), penalty would be levied on algo orders placed beyond + or- 0.75% of last traded price from the current level of +or-1% of last traded price,” Sebi said.Co-location is the placement of trading servers in close proximity with those of the exchange.The regulator said the OTR framework would also be extended to orders placed in the equity cash segment and those under the liquidity enhancement scheme.“It would democratise algo trading opportunities, which was earlier in the hands of few people with high-cost technological infrastructure,” said Prakarsh Gagdani, CEO, 5Paisa Capital. “It will enable millions of retail customers access to low-cost and high-technology trading opportunities.”The regulatory board, which met on Wednesday, has also approved the proposal for physical settlements for all stock derivatives being carried out in a phased manner.It proposes to revise upward the existing criteria for market-wide position limits and median quarter sigma size to Rs 500 crore and Rs 25 lakh from the current Rs 300 crore and Rs 10 lakh. The enhanced criteria will have to be met for a continuous period of six months. According to the BSE, median quarter sigma order size is the order size (in value terms) required to cause a change in the stock price equivalent to one-quarter of a standard deviation.To begin with, stocks which are currently in derivatives but fail to meet any of the enhanced criteria, will have to be physically settled.Such stocks would exit the derivative segment if they fail to meet any of the enhanced criteria within one year from the specified date or fail to meet any of the current existing criteria for a continuous period of three months.“Only those stocks which are not fulfilling the Sebi’s enhanced criteria will have to go for physical settlement in stock derivatives contracts,” said Yogesh Radke, head of quantitative research, Edelweiss Capital. “As most of these stocks are anyway illiquid, I don’t think this decision will have any impact on the volumes of F&O segment.”The board approved the cutting of additional expenses charged by mutual funds by 15 basis points and proposed a discussion paper for laying down a framework of compliance with Sebi rules by listed companies in the corporate insolvency resolution process. A basis point is 0.01 percentage point.“Various issues flagged in the discussion paper includes aspects relating to disclosures, trading in stock exchanges, material related party transactions, reclassification of promoters, compliance with minimum public shareholding requirement and delisting pursuant to resolution plan,” Sebi said.