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SEBI’s new Foreign Portfolio Investor Regulations, 2014

CS Vinita Nair

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Pooja Rawal

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Date: October 22, 2013 updated on January 9, 2014

Update

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Update

Introduction “There are many categories of foreign portfolio investors such as FIIs, sub-accounts, QFIs etc. and there are also different avenues and procedures for them. Designated depository participants, authorised by SEBI, will now be free to register different classes of portfolio investors, subject to compliance with KYC guidelines SEBI will simplify the procedures and prescribe uniform registration and other norms for entry of foreign portfolio investors. SEBI will converge the different KYC norms and adopt a risk-based approach to KYC to make it easier for foreign investors such as central banks, sovereign wealth funds, university funds, pension funds etc. to invest in India”

Union Budget Speech for 2013-14 of P. Chidambaram (Hon’ble Finance Minister) SEBI vide Press Release PR No. 99/2013 on 5th October, 2013 conveyed the approval of draft SEBI (Foreign Portfolio Investors) Regulations, 20131 (the draft Regulations) in the Board Meeting of SEBI.. The draft Regulations2 will merge all the existing FIIs3, Sub Accounts4 and Qualified Foreign Investors (QFIs)5 into a new investor class termed as “Foreign Portfolio Investor ”( FPI). The base of the draft Regulations has been (Foreign Institutional Investors) Regulations, 1995, Qualified Foreign Investors (QFIs) framework and the recommendations of the “Committee on Rationalization of Investment Routes and Monitoring of Foreign Portfolio Investments” (the Committee Report)6 dated 12th June, 2013. SEBI vide Notification No. LAD-NRO/GN/2013-14/36/12 dated 7th January, 2014 has enforced Securities and Exchange Board Of India (Foreign Portfolio Investors) Regulations, 20147. Further, SEBI vide Circular No. CIR/IMD/FIIC/02/2014 dated January 08, 20148 has issued operational guidelines for Designated Depository Participants.

1 http://www.sebi.gov.in/sebiweb/home/detail/26556/yes/PR-SEBI-Board-Meeting

2 http://www.sebi.gov.in/cms/sebi_data/boardmeeting/1381814962164-a.pdf

3 An institution established or incorporated outside India which proposes to make investment in India in securities:

http://www.sebi.gov.in/cms/sebi_data/commondocs/fiiregu09_p.pdf 4 Any person resident outside India, on whose behalf investments are proposed to be made in India by a foreign

institutional investor and who is registered as a sub-account under these regulations: Links same as FN 2 5 Individuals, groups or associations, Resident in a country that is a member of Financial Action Task Force

(FATF) or a country that is a member of a group which is a member of FATF and resident in a country that is a

signatory to IOSCO’s MMOU or a signatory of a bilateral MOU with Securities and Exchange Board of India

(SEBI). QFIs do not include FIIs/Sub accounts/ Foreign Venture Capital Investor:

http://www.sebi.gov.in/cms/sebi_data/attachdocs/1342784172262.pdf 6 http://www.sebi.gov.in/cms/sebi_data/attachdocs/1372854491698.pdf

7 http://www.sebi.gov.in/cms/sebi_data/attachdocs/1389083605384.pdf

8 http://www.sebi.gov.in/cms/sebi_data/attachdocs/1389173830887.pdf

http://www.sebi.gov.in/sebiweb/home/detail/26556/yes/PR-SEBI-Board-Meeting

http://www.sebi.gov.in/cms/sebi_data/boardmeeting/1381814962164-a.pdf

http://www.sebi.gov.in/cms/sebi_data/commondocs/fiiregu09_p.pdf

http://www.sebi.gov.in/cms/sebi_data/attachdocs/1342784172262.pdf





Update

Background SEBI Board in its meeting held on October 06, 2012 decided that SEBI will prepare a draft guideline based on the guidance of the Working Group on Foreign Investment (WGFI) and formed a “Committee on Rationalization of Investment Routes and Monitoring of Foreign Portfolio Investments” under the Chairmanship of Shri K. M. Chandrasekhar, comprising of representatives from GoI, RBI and various market participants. The rationale behind having an integrated policy on foreign investments is that it would reduce the overall complexity and number of regulations governing inbound investments. Hence, in the Committee Report, it was recommended to merge FII, Sub Account and QFI into FPI and have common market entry, limit monitoring and reporting norms and have segregations for applying risk based Know Your Customer (KYC) norms, Investment guidelines and restrictions. As per the Committee Report, the harmonized model would achieve the following twin objectives –

i. Provide a unified market entry for foreign portfolio investors, and ii. Retain the ability of government/regulatory authorities to incentivize or restrict end use of foreign capital.

A quick analysis of the SEBI (Foreign Portfolio Investors) Regulations, 2014 (the Regulation) are as below: 1. When do the Regulations come into effect?

This regulation shall come into force on the date of notification in official gazette on such date as the Board may specify and different dates may be specified for different provisions of these regulations and any reference in any provision to the commencement of these regulations shall be construed as a reference to the commencement of that provision. 2. Who are Foreign Portfolio Investors (FPI)?

Earlier the FII, QFI and Sub Accounts had their own set of regulations to be qualified as FII, QFI and Sub Accounts. However with the enforcement of the Regulation, all these have been merged into one called “FPI”

Further, “Foreign Portfolio Investor” means a person who satisifies the eligibility criteria prescribed under Regulation 4 and has been registered under Chapter II of these regulations, which hereinafter shall be deemed to be an intermediary in terms of the provision of the Act; 3. Are there any Categories of FPIs?


Update

Yes, as per the Regulations, the FPIs are further divided into 3 categories as below: Though there is an integration of portfolio investors in to a single category called FPI’s, from KYC point of view, the Committee recommended for categorization of FPIs based on the perceived risk profile. Subsequently, SEBI vide CIR/MIRSD/ 07 /2013 dated September 12, 201310 issued circular specifying KYC requirements for these categories:

10 http://www.sebi.gov.in/cms/sebi_data/attachdocs/1378989676484.pdf # an applicant seeking registration as a foreign portfolio investor shall be considered to be "appropriately regulated" if it is regulated or supervised by the securities market regulator or the banking regulator of the concerned foreign jurisdiction, in the same capacity in which it proposes to make investments in India * broad based fund" shall mean a fund, established or incorporated outside India, which has at least twenty investors, with no investor holding more than forty-nine per cent of the shares or units of the fund:

Provided that if the broad based fund has an institutional investor who holds more than forty nine per cent of the shares or units in the fund, then such institutional investor must itself be a broad based fund

Foreign Portfolio Investor

Government and Government related investors such as Central Banks, Governmental Agencies, Sovereign Wealth Funds, International/ Multilateral Organizations/ Agencies

a) Appropriately regulated broad based funds such as Mutual Funds, Investment Trusts, Insurance/Reinsurance Companies;

b) Appropriately regulated persons such as Banks, Asset Management Companies, Investment Managers/ Advisors, Portfolio Managers;

c) Broad based funds that are not appropriately regulated# whose investment manager is appropriately regulated.

Provided that the investment manager of such broad based fund is itself registered as Category II foreign portfolio investor

d) University Funds and Pension Funds e) University related Endowments

already registered with SEBI as FII/Sub Account

Category III Category II Category I

All others not eligible under Category I and II foreign portfolio investors such as Endowments, Charitable Societies/ Trust, Foundations, Corporate Bodies, Trusts, Individuals and Family Offices.



Update

4. What is the Registration process for FPI’s?

Application to be made to the DDP in Form A (format as prescribed) after satisfying the eligibility criteria’s. The process is explained as under:

5. What are the eligibility criteria for FPI?

Requirement under the Regulation Equivalent Requirements under SEBI (FII) Regulations, 1995

Equivalent Requirements for QFIs

1. The applicant is a person not resident in India

2. the Applicant needs to be a resident of a country whose securities market regulator is a signatory to International Organization of Securities Commission‘s Multilateral Memorandum of Understanding ( Appendix A Signatories) or a signatory to bilateral Memorandum of Understanding with the Board11;

3. In case of applicant being a bank,

the applicant needs to be resident of a country whose central bank is a member of Bank for International Settlements:

For FII 1. Applicant's track record,

professional competence, financial soundness, experience, general reputation of fairness and integrity.

In case of a newly established fund, the track record of the investment manager of the fund who has promoted it may be taken into consideration

2. Applicant should be regulated by

an appropriate foreign regulatory authority.

This was not mandatory for university funds, endowments,

QFI shall mean a person who fulfils the following criteria: (i) Resident in a country that is a

member of Financial Action Task Force (FATF) or a member of a group which is a member of FATF; and

(ii) Resident in a country that is a signatory to IOSCO’s MMOU (Appendix A Signatories) or a signatory of a bilateral MOU with SEBI:

The person should not be a resident in a country listed in the public statements issued by FATF from time to time on-

11

shall mean a bilateral Memorandum of Understanding between SEBI and the overseas regulator that, inter alia,

provides for information sharing arrangements under clause (ib) of sub section (2) of Section 11 of the SEBI

Act,1992.


Update



4. The applicant shall not be resident

in a country identified in the public statement of Financial Action Task Force as:

(i) a jurisdiction having a strategic Anti-Money Laundering/ Combating the Financing of Terrorism deficiency to which counter measures apply;

or (ii) a jurisdiction that has not made sufficient progress in addressing the deficiencies or has not committed to an action plan developed with the Financial Action Task Force to address the deficiencies:

5. The applicant should be legally

permitted to invest in securities outside the country of its incorporation or establishment or place of business.

6. The applicant shall not be a non-resident Indian

7. The applicant should be authorized

by its Memorandum of Association and Articles of Association or equivalent document(s) or the agreement to invest on its own behalf or on behalf of its clients;

8. The applicant should have sufficient

experience, good track record, and needs to be professionally competent, financially sound having generally good reputation of fairness and integrity.

Note: The term “person”, “non-resident” and “resident in India” shall have the meaning assigned to it under Income Tax Act, 1961

foundations, charitable trusts and charitable societies.

3. Applicant needs to be granted

permission under the provisions of the Foreign Exchange Regulation Act, 1973 (46 of 1973) by the Reserve Bank of India for making investments in India as a Foreign Institutional Investor

4. Applicant should either

i) an institution established or

incorporated outside India as a pension fund, mutual fund, investment trust, insurance company or reinsurance company;

ii) an International or Multilateral

Organisation or an agency thereof or a Foreign Governmental Agency, Sovereign Wealth Fund or a Foreign Central Bank;

iii) an asset management

company, investment manager or advisor, bank or institutional portfolio manager, established or incorporated outside India and proposing to make investments in India on behalf of broad based funds and its proprietary funds, if any;

iv) a trustee of a trust

established outside India and proposing to make investments in India on behalf of broad based funds and its proprietary funds, if any;

v) university fund, endowments,

foundations or charitable trusts or charitable societies subject to;

(i) jurisdictions having a strategic Anti-Money Laundering/ Combating the Financing of Terrorism (AML/CFT) deficiencies to which counter measures apply, (ii) jurisdictions that have not made sufficient progress in addressing the deficiencies or have not committed to an action plan developed with the FATF to address the deficiencies:

Further, such person should not be a resident in India and should not be registered with SEBI as Foreign Institutional Investor or Sub-account or Foreign Venture Capital Investor


Update



(a) The applicant should be in

existence for a period of atleast 5 years;

(b) it should be legally permissible for the applicant to invest in securities outside the country of its incorporation or establishment;

(c) applicant should be registered with any statutory authority in the country of their incorporation or establishment

(d) legal proceeding should not be initiated by any statutory authority against the applicant.

(e) the applicant should be serving public interest.

For Sub-account The applicant needed to fall under any of the following categories (i) broad based fund or portfolio

which is broad based, incorporated or established outside India; or

(ii) proprietary fund of a registered foreign institutional investor; or

(iii) foreign corporate12; or (iv) foreign individual13; or

12

foreign corporate” means a body corporate incorporated outside India which fulfills the following conditions:-

(i) its securities are listed on a stock exchange outside India;

(ii) it has asset base of not less than two billion US dollars;

(iii) it had an average net profit of not less than fifty million US dollars during the three financial years preceding

the date of the application 13

foreign individual” means a foreigner who fulfills the following conditions:-

(i) has a networth of not less than fifty million US dollars;

(ii) holds the passport of a foreign country for a period of at least five years preceding the date of application;

(iii) holds a certificate of good standing from a bank;

(iv) is the client of the foreign institutional investor or any other entity which belongs to the same group as the

foreign institutional investor, for a period of at least three years preceding the date of the application:


Update



(v) university fund, endowment, foundation, charitable trust or charitable society who are eligible to be registered as a foreign institutional investor under SEBI (FII) Regulations, 1995.

Non-resident Indian shall not be eligible to apply as sub-account

6. What will happen to existing FIIs and sub-accounts?

A foreign institutional investor or sub-account who has been granted registration by the Board prior to the commencement of these regulations, shall be deemed to be a foreign portfolio investor. Such FII or sub-account may, subject to payment of conversion fees as, specified in Part A of Second Schedule ( USD 1000) to the Board continue till the expiry of its registration as a FII or sub-account or until he obtains certificate of registration as FPE, whichever is earlier.

7. Will QFIs require fresh registration under FPI regulations?

Yes, the QFIs will need to get a fresh registration. All existing Qualified Foreign Investors (QFIs) may continue to buy, sell or otherwise deal in securities subject to the provisions of these regulations, for a period of one year from the date of commencement of these regulations, or if he has made an application under this regulation for registration, till disposal of such application. 8. What are the Fees applicable to FPIs?

Fees of US $1000 to be paid by existing FIIs, Sub Accounts, and QFIs to obtain

registration certificate to act as Foreign Portfolio Investor

Category I- Nil

Category II- Registration fees of US $ 1000 annually, till the validity of its registration

Category III- Registration fees of US $ 100 annually, till the validity of its registration

Foreign Portfolio Investor belonging to Category II and III shall pay registration fees,

before commencement of its activity.

Category II- Registration fees of US $ 3000 for every block of 3 years, till the validity

of its registration, by way of electronic transfer in the designated bank account of the

Board.


Update

Category III- Registration fees of US $ 300 annually, 3000 for every block of 3 years,

till the validity of its registration, by way of electronic transfer in the designated bank

account of the Board.

9. Investment restrictions/ permissibility for existing:

Requirement under the Regulation Equivalent Requirements under

SEBI(FII) Regulations, 1995 Equivalent Requirements for QFIs

Investment Condition

A Foreign Portfolio Investor shall invest only in the following securities: (a) Securities in the primary and

secondary markets including shares, debentures and warrants of companies, listed or to be listed on a recognized stock exchange in India;

(b) Units of schemes floated by domestic mutual funds, whether listed on a recognized stock exchange or not;

(c) Units of schemes floated by a Collective Investment Scheme;

(d) Derivatives traded on a recognized stock exchange;

(e) Treasury Bills and dated Government

Securities;

(f) Commercial Papers issued by an Indian company;

(g) Rupee denominated credit enhanced

bonds

(h) Security Receipts issued by Asset Reconstruction Companies;

(i) Perpetual Debt instruments and

Debt capital instruments as specified

FIIs were permitted to invest only in following: (a) securities in the primary and

secondary markets including shares, debentures and warrants of companies unlisted, listed or to be listed on a recognised stock exchange in India; and

(b) Units of schemes floated by domestic mutual funds including Unit Trust of India, whether listed on a recognised stock exchange or not,units of scheme floated by a Collective Investment Scheme.

(c) dated Government Securities;

(d) derivatives traded on a

recognised stock exchange; (e) commercial paper;

(f) security receipts;

Indian Depository Receipts.

QFIs can invest in the following: a) equity shares in public issues, to be listed on recognised stock exchange(s), listed equity shares through SEBI registered stock brokers, on recognized stock exchanges in India b) Mutual Funds (MF) units through the following two routes:

i) Direct route -Holding

MF units in demat account through a SEBI registered DP;

ii) Indirect route- Holding MF units via Unit Confirmation Receipt (UCR)

c) Corporate debt securities listed on recognized stock exchange(s); ‘to be listed’ corporate debt securities directly from the issuer. d) units of debt schemes


Update

Requirement under the Regulation Equivalent Requirements under SEBI(FII) Regulations, 1995


by the Reserve Bank of India from time to time.

(j) Listed and unlisted non-convertible

debentures/bonds issued by an Indian company in the infrastructure sector, where infrastructure‘ is defined in terms of the extant External Commercial Borrowings (ECB) guidelines;

(k) Non-convertible debentures / bonds

issued by Non-Banking Finance Companies categorized as Infrastructure Finance Companies‘(IFCs) by the Reserve Bank of India;

(l) Rupee denominated bonds or units

issued by Infrastructure Debt Funds;

(m) Indian Depository Receipts;

(n) Such other instruments specified by the Board from time to time.

of Indian mutual funds

Note: QFIs can invest in those debt mutual fund schemes that hold atleast 25 percent of their assets (either in debt or equity or both) in the infrastructure sector upto a total ceiling of USD 3 billion.

Investment Restrictions

Equity Shares

The purchase of equity shares of each company by a single Foreign Portfolio Investor or an investor group shall not exceed ten percent of the total issued capital of that company.

Equity Shares

The purchase of equity shares of each company by a Foreign Institutional Investor investing on his own account shall not exceed ten percent of the total issued capital of that company.

In respect of a Foreign Institutional Investor investing in equity shares of a company on behalf of his sub-accounts, the

Equity Shares

The total shareholding held by a QFI shall not exceed five percent of paid up equity capital of the company at any point of time. This investment limit shall be applicable to each class of equity shares having separate and distinct ISIN.


Update

Requirement under the Regulation Equivalent Requirements under SEBI(FII) Regulations, 1995


investment on behalf of each such sub-account shall not exceed ten percent of the total issued capital of that company:

Provided that in case of foreign corporates or individuals, each of such sub-account shall not invest more than 5% of the total issued capital of the company in which such investment is made.

Aggregate shareholding of all QFIs shall not exceed ten percent of the paid up equity capital of the company at any point of time, in respect of each equity share class having separate and distinct ISIN.

10. Conditions for issuance of off-shore derivatives instruments

Requirement under the

Regulation Equivalent Requirements under

SEBI(FII) Regulations, 1995 Equivalent

Requirements for QFIs Permitted only for Category I and II

(1) No Foreign Portfolio Investor may issue, subscribe or otherwise deal in offshore derivative instruments, directly or indirectly, unless the following conditions are satisfied:

(a) such offshore derivative instruments are issued only to persons who are regulated by an appropriate foreign regulatory authority;

(b) such offshore derivative instruments are issued after compliance with ‘know your client‘ norms:

Permitted (1) No foreign institutional investor may issue, or otherwise deal in offshore derivative instruments, directly or indirectly, unless the following conditions are satisfied: (a) such offshore derivative

instruments are issued only to persons who are regulated by an appropriate foreign regulatory authority;

(b) such offshore derivative instruments are issued after compliance with ‘know your client’ norms:

(2) A foreign institutional investor shall ensure that no further issue or transfer is made of any offshore

Not permitted (A declaration and undertaking to this effect is obtained by DP from the QFI)


Update

Requirement under the Regulation

Equivalent Requirements under SEBI(FII) Regulations, 1995


Provided that those unregulated broad based funds, which are classified as Category II foreign portfolio investor by virtue of their investment manager being appropriately regulated shall not issue, subscribe or otherwise deal in offshore derivatives instruments directly or indirectly

(2) A Foreign Portfolio Investor shall ensure that further issue or transfer of any offshore derivative instruments issued by or on behalf of it is made only to persons who are regulated by an appropriate foreign regulatory authority

(3) Any offshore derivative instruments issued under the Securities and Exchange Board of India (Foreign Institutional Investors) Regulations, 1995 before commencement of these regulation shall be deemed to have been issued under the corresponding provision of these regulation.

Definition of offshore derivative instrument is same as the explanation under SEBI (FII) Regulations, 1995, only foreign institutional investor has been replaced with Foreign Portfolio investor

derivative instruments issued by or on behalf of it to any person other than a person regulated by an appropriate foreign regulatory authority For the purpose of this regulation, - ‘offshore derivative instrument’ means any instrument, by whatever name called, which is issued overseas by a foreign institutional investor against securities held by it that are listed or proposed to be listed on any recognised stock exchange in India, as its underlying;

“person regulated by an appropriate foreign regulatory authority” means and includes the following, namely:-

(i)any person that is regulated/supervised and licensed/registered by a foreign central bank;

(ii)any person that is registered and regulated by a securities or futures regulator in any foreign country or state;

(iii) any broad based fund or portfolio incorporated or established outside India or proprietary fund of a registered foreign institutional investor or university fund, endowment, foundation, charitable trust or charitable society whose investments are managed by a person covered by clauses (i), or (ii) above.


Update

11. Who can act as DDP:

Note: SEBI approved Qualified Depository Participant which has been granted approval by the Board prior to the commencement of these regulations, qualified foreign investor account as on date of notification of these regulations, shall be deemed to have been granted approval as designated depository participant subject to the payment of fees as specified in Part B of Second Schedule

The DDP needs to have multinational presence either through its branches or through

agency relationships with intermediaries regulated in their respective home jurisdictions.

Further, the DDP should have systems and procedures to comply with the requirements of

Financial Action Task Force Standards, Prevention of Money Laundering Act, 2002, Rules

prescribed thereunder and the circulars issued from time to time by SEBI.

12. What is the process for registration as DDP?

An application for approval to act as DDP shall be made to SEBI through the depository in

which the applicant is a participant and shall be accompanied by the application fee.

Application Fees - INR 10,000/- at the time of making application, by way of Draft in the

name of ―”Securities and Exchange Board of India” payable at Mumbai

Approval Fees- INR 5,00,000/- by way of Draft in the name of ―Securities and Exchange

Board of India” payable at Mumbai, at the time of grant of prior approval by the Board


Update

13. The difference in the roles and responsibilities of the parties under the FPI,

FII and QFI Regulations

Particulars FPI QFI FII

Parties involved

DDP Designated Bank

Qualified DP SEBI Domestic Custodian Designated Bank Compliance Officer

Role and Responsibilities

DDP - Role The FPI approaches the

DDP for Registration. The FPI or a global

custodian who is acting on behalf of FPI shall enter into an agreement with the DDP engaged by it to act as a custodian of securities. Responsibilities

To furnish information, record or documents to the Board or Reserve Bank of India, as may be required.

To ensure that only registered foreign portfolio investors are allowed to invest in securities market.

To ensure that the foreign portfolio investor does not have opaque structure15.

Qualified DP The QFI approaches the

Qualified DP for Registration.

The qualified DPs are mandated to perform the prescribed KYC and ensure fulfilment of the requisite conditions before allowing the applicant to open a demat account as QFI.

Any violations by QFI a qualified DP is obliged to bring such instances to the notice of concerned depository and SEBI. The qualified DP shall report QFI holdings in the format prescribed by the depositories

SEBI The FII approaches the

Board for Registration. Domestic Custodian To monitor the

investment of the FII. To report to the Board

on a daily basis the transactions entered into by the FII.

To preservation for five years of records relating to his activities as a FII.

To furnishing information to the Board as may be called with regard to the activities of the FII.

Designated Bank A Foreign Institutional Investor shall appoint a branch of a bank approved by the

15

"opaque structure" shall mean any structure such as protected cell company, segregated cell company or

equivalent, where the details of the ultimate beneficial owners are not accessible or where the beneficial owners are

ring fenced from each other or where the beneficial owners are ring fenced with regard to enforcement:

Provided that the foreign portfolio investor satisfying the following criteria shall not be treated as having opaque

structure:

(i) the applicant is regulated in its home jurisdiction

(ii) each fund or sub fund in the applicant satisfies broad based criteria, and

(iii) the applicant gives an undertaking to provide information regarding its beneficial owners as and when Board

seeks this information.


Update


To have adequate systems to ensure that in case of jointly held depository accounts, each of the joint holders meet the requirements specified for foreign portfolio investors and shall perform KYC due diligence for each of the joint holders.

To ascertain at the time of granting registration and whenever applicable, whether the FPI forms part of any group.

Open Demat account after complying with the Prevention of Money Laundering Act, 2002, Financial Action Task Force standards.

To report to the depository and the Board on a daily basis the transactions entered into by the FPI.

To carry out necessary due diligence and obtain appropriate declarations and Undertakings before opening a depository account.

To ensure that equity shares held by FPI are free from all encumbrances including pledge or lien at all times.

To collect and remit fees to the Board, in the manner as specified in Part A of Second Schedule.

Reserve Bank of India for opening of foreign currency denominated accounts and special non-resident rupee accounts Compliance Officer The compliance officer

shall immediately and independently report to the Board any non-compliance observed by him


Update


In case of change in structure or constitution or direct/ indirect change in beneficial ownership reported by the FPI, to re-assess the eligibility of such FPI.

To Maintain proper books of accounts, records, etc.

Designated Bank FPI shall appoint a branch of a bank authorized by the Reserve Bank of India for opening of foreign currency denominated account and special nonresident rupee account before making any investments in India Compliance Officer Every FPI shall appoint

compliance officer for monitoring compliance. In case of a FPI who is an individual, such individual shall be responsible for monitoring the compliance

The compliance officer shall immediately and independently report to the Board any non-compliance observed by him


Update

14. What regulations will be amended once FPI regulations come into effect?

Regulations Particulars Amendments Effect

SEBI (Issue of Capital and Disclosure Requirements) Regulations, 200916

2(1)(za) Definition of

Promoter

The word foreign institutional investor shall be substituted with foreign portfolio investor

Here, the FPI will not be deemed to be a promoter merely by virtue of the fact that ten per cent. or more of the equity share capital of the issuer is held by such person. However FPI shall be treated as promoter for the subsidiaries or companies promoted by them or for the mutual fund sponsored by them

2(1)(zb) Definition of Promoter

The word foreign institutional investor shall be substituted with foreign portfolio investor

Same as above

2(1)(zd)(ii) Definition of qualified institutional buyer

The word foreign institutional investor and sub account shall be substituted with foreign portfolio investor other than Category III foreign portfolio investors

Here, the FPI other than Category III FPI will be considered as QIB

Para XII (B) clause (14) (d) of Schedule VIII Part A

Issue Procedure

The word foreign institutional investors shall be substituted with foreign portfolio investors

Along with other disclosures, the issuer also need to disclose Bids FPI on repatriation basis

Para XII (B) clause (32 )(b) of Schedule VIII Part A

Issue Procedure


Along with other disclosures, the issuer also need to disclose Restrictions on foreign ownership of Indian securities: ‘Investment by FPI’

16

http://www.sebi.gov.in/acts/icdrreg09.pdf

http://www.sebi.gov.in/acts/icdrreg09.pdf


Update


Para (5), sub-para XIX (B) of Schedule VIII Part E

Disclosures in Letter of Offer

for the acronym “FIIs” the words “foreign portfolio investors” shall be substituted


Schedule XI, in Part B, in Table (2), at serial number 1(a)

Schedule XI – Book building process; Part B Format Of Bid Data Displayed On Stock Exchange

the acronym “FIIs” the words “foreign portfolio investors” shall be substituted;

Table 2 provides details of allocation to investors other than anchor imvestors. Sr. no 1(a) will now include category of Foreign Portfolio investors.

Schedule XXI, in Part A, in para XVII, in sub-para (B)

Disclosures in the addendum to the offer document for rights Issue of indian depository receipts

for the acronym “FIIs” the words “foreign portfolio investors” shall be substituted.


SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 201117

Regulation 2(q)(2)(ix)

Definition of persons acting in concert

foreign institutional investor and its sub accounts shall be substituted with foreign portfolio investor

With this amendment the FPI shall be deemed to be persons acting in concert with other persons within the same category, unless the contrary is established

SEBI (Intermediaries) Regulations, 200819

Regulations 2, in sub-regulation (1), in clause (g),

Definition of intermediary

After the words "stock exchange" and before the words "but does not include", the words "and foreign portfolio investors" shall be inserted;

With this amendment it means that An intermediary is a person mentioned in clauses (b) and (ba) of sub-section (2) of section 11 and sub-section (1) and (1A) of section 12 of the Act and includes an asset management company in relation to the SEBI India (Mutual Funds) Regulations, 1996, a clearing member of a clearing corporation or clearing house and a trading

17

http://www.sebi.gov.in/cms/sebi_data/commondocs/takeovernotifi_p.pdf 19

http://www.sebi.gov.in/cms/sebi_data/commondocs/internotification_p.pdf

http://www.sebi.gov.in/cms/sebi_data/commondocs/takeovernotifi_p.pdf

http://www.sebi.gov.in/cms/sebi_data/commondocs/internotification_p.pdf


Update


The words and symbol Foreign institutional investor, shall be omitted.

member of a derivative segment of a stock exchange and FPI but does not include , foreign venture capital investor, mutual fund, collective investment scheme and venture capital fund

SEBI (Mutual Funds) Regulations 199620

49L (3)(v) Definition of Strategic Investor


With this amendment, along with others, Strategic investors would also include FPI

SEBI (Portfolio Managers) Regulations, 199321

16A Foreign Institutional Investor and sub-accounts availing portfolio management services.─

the words “Foreign institutional investors and sub-accounts registered with the Board” shall be substituted by the words “Foreign portfolio investors”

FPIs registered with the Board may avail of services of a portfolio manager.

SEBI (Certification of Associated Persons in the Securities Markets) Regulations, 200722

2(1) (c) Definition of “associated person”

the words “Foreign institutional investors shall be substituted by the words “Foreign portfolio investors

means a principal or employee of an intermediary or an agent or distributor or other natural person engaged in the securities business and includes an employee of a foreign portfolio investor or a foreign venture capital investor working in India

SEBI (Central Database of Market Participants) Regulations, 200323

2 (1) (h) Definition of intermediary

the words “Foreign Institutional Investor and” shall be omitted

After the amendment, the definition – means any person who is registered with the Board under section 12 of the Act, but does not include Foreign Venture Capital Investors.

20

http://www.sebi.gov.in/cms/sebi_data/commondocs/SEBI-mutualfundregu1996_p.pdf 21

http://www.sebi.gov.in/cms/sebi_data/commondocs/pmregu1993_p.pdf 22

http://www.sebi.gov.in/cms/sebi_data/commondocs/certificationregu_h.html 23

http://www.sebi.gov.in/cms/sebi_data/commondocs/mapin_p.pdf

http://www.sebi.gov.in/cms/sebi_data/commondocs/SEBI-mutualfundregu1996_p.pdf

http://www.sebi.gov.in/cms/sebi_data/commondocs/pmregu1993_p.pdf

http://www.sebi.gov.in/cms/sebi_data/commondocs/certificationregu_h.html

http://www.sebi.gov.in/cms/sebi_data/commondocs/mapin_p.pdf


Update


2(1) (i) Definition of investor

“Foreign Institutional Investor” the words shall be substituted by “foreign portfolio investor”

means an investor in securities and includes a Foreign Portfolio Investor and a Foreign Venture Capital Investor

2 (1) (n) (2) Definition of Promoter

“Foreign Institutional Investor”, wherever occur, the words “foreign portfolio investor” shall be substituted

Changes in Explanation I & II, Explanation I- A Financial Institution, Scheduled Commercial Bank, Foreign Portfolio Investor or Mutual fund shall not be deemed to be a promoter merely by virtue of its shareholding. Explanation II- A Financial Institution, Scheduled Commercial Bank or Foreign Portfolio Investor shall be deemed to be a promoter of its subsidiary and of the mutual funds sponsored by it.

6 (3) Specified investors to obtain unique identification numbers

“Foreign Institutional Investor”, wherever occur, the words “foreign portfolio investor” shall be substituted

On and from such date as may be notified by the Board in the Official Gazette, no specified investor, being a Foreign Portfolio Investor, a sub-account or a Foreign Venture Capital Investor shall buy, sell or deal in any securities which are listed on any recognized stock exchange or in units of a mutual fund or a collective investment scheme or subscribe to securities which are proposed to be listed in any recognized stock exchange or units of a mutual fund or a collective investment scheme unless it has been allotted a unique identification number.

15. What regulations/ circulars will be repealed/ rescinded?

The Securities and Exchange Board of India (Foreign Institutional Investors) Regulations, 1995 shall stand repealed.

Following SEBI circulars shall stand rescinded:

SEBI Circular No. Particulars

CIR/ IMD /DF / 14 /2011- August 9, 2011 Investment by Foreign Investors in Mutual Fund Schemes

CIR/ IMD/FII&C/3/2012 - January 13, 2012 Investment by Qualified Foreign Investors (QFI) in Indian equity shares.

CIR/ IMD/ FII&C/ 4/2012-January 25, 2012 Eligibility criteria for qualified depository


Update

participant CIR/ IMD/ FII&C/ 13/ 2012 - June 07, 2012 Revision in framework for Qualified Foreign

Investor (QFI) investment in Equity Shares and Mutual Fund schemes

CIR/ IMD/ FII&C/ 17 / 2012 July 18, 2012 Investment by Qualified Foreign Investors (QFI) in Indian Corporate Debt

CIR/ IMD/ FII&C/ 18/ 2012 July 20, 2012 Amendment to definition of Qualified Foreign Investor (QFI) and QFI investment in debt mutual fund schemes which invest in infrastructure

CIR/IMD/FIIC/13 /2013 August 13, 2013 Investment by Qualified Foreign Investors (QFIs) in “to be listed” Indian Corporate Debt Securities

updatevinodkothari.com/wp-content/uploads/2017/03/sebis_new_foreign... · qfis etc. and there are...

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