Sebi eases FPI norms; allows listing of security receipts by ARCs

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Mumbai: Markets regulator Sebi today decided to relax entry norms for foreign portfolio investors (FPIs) willing to invest in the Indian markets.

Besides, Sebi would allow listing of security receipts issued by an asset reconstruction company (ARC) on stock exchange platform.

This will enhance capital flows into the securitisation industry and particularly be helpful to deal with bank non- performing assets (NPAs), Sebi Chairman Ajay Tyagi told reporters here.

Security receipt, in market parlance, means a receipt or other security issued by a securitisation company or reconstruction company.

The regulator had earlier issued a consultation paper titled ‘easing of access norms for investment by FPIs’ and had sought comments from public at large.

After taking into consideration views of the public, the board of Sebi has decided to ease some rules, including expanding the eligible jurisdictions for registration by including countries with diplomatic tie-ups with India.

Besides, the regulator may rationalise “fit and proper” criteria for FPIs as well as simplify broad-based requirements for such investors.

The moves are aimed at easing direct registration for FPIs and avoiding participatory notes (P-notes).

According to the new proposal, more jurisdictions such as Canada would be able to access the market due to change in FPI Regulations.

Category I and II FPIs, which are essentially government and regulated entities, should not need any additional documentation and procedural requirements. However, Category III FPIs should continue to be subject to such requirements.

In a major revamp, Sebi in 2014 had released norms that had clubbed different categories of foreign investors into a new class called FPIs. Under the regime, FPIs have been divided into three categories as per their risk profile and the KYC (know your client) requirements, while other registration procedures have been made simpler for them.

Further, rationale of broad-based criteria would be extended in other cases wherein the applicant funds have other institutional investors — sovereign wealth fund, insurance/reinsurance companies, pension funds, Exchange Traded Funds (ETFs) as their underlying investors, Tyagi said.

Currently, an FPI is considered to be broad-based in case such overseas investor has a bank as an underlying investor.

Broad based fund means a fund, established outside India, which has at least 20 investors, with no investor holding more than 49 per cent of the shares or units of the fund.

In case broad based fund loses its status due to exit of some offshore global investors then it would not result in immediate loss of Category II status. Three months time should be given to such funds to regain such status.

The regulator has decided to discontinue the requirements of seeking its prior approval in case of change in local custodian or designated depository participants (DDPs).

At the time of change of local custodian/DDP, the new DDP would be permitted to rely on the registration granted by previous DDP at the time of transition. The move is expected to avoid duplicate efforts and incremental documentation by the FPIs as well as the DDPs.

Further, private bank/merchant bank would be allowed invest on behalf of their clients provided details of beneficial owners are available and will be provided as and when required by regulators.

Besides, banks do not have any secrecy arrangement with investors and secrecy laws do not apply to the jurisdictions in which the bank is regulated for such relaxation.

Further, the regulator has exempted FPIs having multiple investment managers (MIM) structure from seeking its prior approval in case of ‘free of cost’ transfer of assets.

The board has approved, “simplification of process for addition of share class by FPIs”. Also, it approved a modification in encumbrance obligation to enable statutory payments.

Further, it has allowed conditional registration to existing India dedicated funds.

Sebi has rationalised procedure for submission of Protected Cell Company (PCC)/ Multi-Class Vehicle (MCV) Declarations and Undertakings and investor grouping requirement at the time of continuance of registration of FPI.

In addition, the board has expanded the entities considered as ‘appropriately regulated persons’ in terms of FPI regulations.

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