Regulatory
Digest
July 12, 2024
Mid-Year FPI Wrap 2024: Developments in The Foreign Portfolio Investor Regime
The significant developments in the FPI space
in the first half of 2024 are:
Release of updated
Master Circular for FPIs. Amendment to circular
mandating additional disclosures by FPIs that
fulfil certain objective criteria. Circular on relaxation
of timeline for disclosure of material changes
by FPIs. Circular on flexibility
to FPIs dealing with their securities post expiry
of their registration. Relief for NRI, OCI &
RI Investors in GIFT IFSC based FPIs.
Introduction
The first half of 2024 saw SEBI introducing multiple
changes in the framework governing Foreign Portfolio
Investors (“FPIs”).
From issuing thought-provoking consultation
papers to releasing materially impacting circulars,
SEBI managed to keep all the stakeholders on their
toes. .
In this issue of our regulatory digest, we discuss
the developments in the FPI space from January 1,
2024 to June 30, 2024.
Figure: Timeline of the updates
in the FPI regime
Master circular for FPIs, DDPs
and EFIs
The SEBI (Foreign Portfolio Investors) Regulations,
2019 (“FPI Regulations”)
outline the eligibility criteria, categories of
FPIs, investment conditions and restrictions, general
reporting obligations, and other guidelines for
FPIs and Designated Depository Participants (“DDPs”).
Soon after their notification on September 23, 2019,
the FPI Regulations were supplemented by consolidated
operational guidelines (“Operational
Guidelines”) for FPIs, DDPs, and
Eligible Foreign Investors (“EFIs”),
which were released on November 05, 2019, and facilitated
the implementation of the regulations. On December
19, 2022, the Master Circular for FPIs, DDPs, and
EFIs (“Erstwhile Master Circular”)
consolidating various SEBI circulars and guidelines
was released by SEBI in supersession of the Operational
Guidelines.
Recently on May 30, 2024, SEBI released an updated
Master Circular for FPIs, DDPs, and EFIs (“Master
Circular”)1, consolidating
all the SEBI circulars and guidelines applicable
to FPIs. The Master Circular superseded the Erstwhile
Master Circular and serves as a comprehensive guide
for FPIs, covering various aspects like the registration
process of FPIs, know your customer (“KYC”)
requirements, investment conditions/restrictions
and avenues available to FPIs, conditions for issuance
of offshore derivative instruments, position limits
available for derivatives exposure by FPIs, investor
charter for FPIs, requirement of certain objectively
identified FPIs to provide granular information
of all entities holding any ownership, economic
interest, or control in the FPI, on a full look
through basis, etc.
Amendment to Circular mandating
additional disclosures by FPIs that fulfil certain
objective criteria
On August 24, 2023, SEBI issued a circular2
(“Additional Disclosure Circular”) mandating
certain objectively identified FPIs to provide granular
details of all entities holding any ownership, economic
interest, or exercising control in the FPI, on a
full look through basis, up to the level of all
natural persons, without any threshold. For this
purpose of providing the granular details, SEBI
identified the following two types of FPIs:
FPIs holding more than
50% of their Indian equity Assets Under Management
(“AUM”) in a single
Indian corporate group (“50% concentration
criteria”); FPIs that individually,
or along with their investor group, hold more
than INR 25,000 crore (~USD 3 billion) of equity
AUM in the Indian markets.
A detailed mechanism for independently validating
the conformance of FPIs with the conditions and
exemptions has been laid out in a Standard Operating
Procedure (“SOP”) framed
and adopted by all DDPs, in consultation with SEBI.
However, since the release of the Additional Disclosure
Circular and the SOP, there has been a huge uproar
amongst the market participants with regards to
their practical applicability. In an attempt to
resolve some of these issues, on March 20, 2024,
SEBI released a circular3 exempting certain
FPIs breaching the 50% concentration criteria from
providing the granular details, subject to the following
conditions:
The apex Indian company
of such corporate group has no identified promoter.
The details of the corporate groups with apex
companies having no identified promoters is
available
here. This link is updated by depositories
as and when required. The FPI holds not more
than 50% of its Indian equity AUM in the corporate
group, after disregarding its holding in the
apex company. The composite holdings
of all such FPIs (that meet the 50% concentration
criteria excluding FPIs which are either exempted
or have disclosed the granular information)
in the apex company is less than 3% of the total
equity share capital of the apex company.
The responsibility of tracking
the information regarding the breach of the above-mentioned
3% holding in the apex company and making the same
public, before the start of trading on the next
day has been given to the depositories and is available
here.
Relaxation of timeline for disclosure
of material changes by FPIs
On June 05, 2024, SEBI released a circular relaxing
the timelines for disclosure of material changes
by FPIs.4 This circular resolved the
issues which were earlier faced by the FPIs relating
to the determination of ‘material change’,
and adherence to the seven-day timeline. The circular
introduced the division of ‘material change’
into two types, with different timelines for intimation
of change in material information and submission
of supporting documents for the two types of FPIs.
Please see our hotline
SEBI Relaxes the Timelines for Disclosure of Material
Changes by Foreign Portfolio Investors for a
detailed analysis of the above circular.
Flexibility to FPIs dealing
with their securities post expiry of their registration
On June 05, 2024, SEBI released another circular
providing a detailed framework for FPIs dealing
with their securities post expiry of their registration.5
The framework introduced by this circular was initially
released for comments from the general public vide
a SEBI consultation paper on February 07, 20246,
which was subsequently approved by SEBI in its 15th
March, 2024 board meeting.
This circular inter alia provides for
regularization of FPI registration in case of non-payment
of fees within the expiry of the current FPI registration
period and disposal of FPIs’ securities post
expiry of registration.
Please see our hotline
SEBI provides flexibility to FPIs in dealing with
their securities post expiry of their registration
for an analysis of the above circular.
Relief for NRI, OCI & RI
Investors in GIFT IFSC based FPIs
SEBI in its April 30, 2024 board meeting, approved
a framework for permitting increased participation
of Non – Resident Indians (“NRIs”),
Overseas Citizens of India (“OCIs”)
and Resident Indian (“RI”)
individuals into SEBI registered FPIs based out
of International Financial Services Centres (“IFSC”)
in India and regulated by the International Financial
Services Centres Authority (“IFSCA”).7
Pursuant to the board meeting, on May 02, 2024 and
June 27, 2024, both IFSCA8 and SEBI9
respectively released circulars laying down the
guidelines and framework for FPIs intending to avail
this flexibility.
The framework provides for 100% aggregate contribution
by NRIs, OCIs, and RI individuals in an FPI based
out of IFSC, subject to certain conditions.
Please see our hotline
Relief for NRI, OCI and RI Investors: SEBI allows
Increased Participation in GIFT IFSC based FPIs
for a detailed analysis of the approval and IFSCA
circular.
SEBI Board Meeting
In its board meeting held on June 27, 2024,10
SEBI approved a proposal to exempt University Funds
and University related Endowments, registered or
eligible to be registered as Category I FPI, from
the additional disclosure requirements as prescribed
under the Additional Disclosure Circular, subject
to the following conditions:
The entity’s
Indian equity AUM is less than 25% of its Global
AUM; The entity’s
global AUM is more than INR 10,000 crore equivalent; The entity has filed
appropriate returns/ filing to the respective
tax authorities in its home jurisdiction. This
is to serve as evidence of the nature of the
entity being a non-profit organization which
is exempt from tax.
A Circular laying down the specific eligibility
for availing the exemption is awaited.
NDA Views
The changes brought about by SEBI to the FPI
framework demonstrate SEBI’s attempt to maintain
an equilibrium between providing the requisite policy
support to the FPIs and sustaining integrity of
the Indian markets. The circulars introduced during
this period have, inter alia, led to removing
the ambiguity surrounding disclosure of change in
material information and introduced processes for
liquidating securities post expiry of the FPI registration,
collectively contributing to a more favourable investment
climate. The increased aggregate NRI/OCI/RI contributions
to the IFSC based FPIs have provided newer investment
opportunities to such investors. With Sensex touching
80,000 for the first time on the 3rd
of July, newer jurisdictions taking larger share
of the investment pie, Indian Government bonds getting
impetus by JP Morgan and other global indices, and
more Indian companies going for IPO, we believe
that the ‘ease of doing business’ efforts
of the Indian market regulator should continue.
Authors
-
Ashwin Singh,
Ritul Sarraf,
Prakhar Dua and
Kishore Joshi
You can direct your queries or comments to the relevant member.
1https://www.sebi.gov.in/
legal/master-circulars/may-2024/master-circular-for-
foreign-portfolio-investors-designated-depository-
participants-and-eligible-foreign-investors-_83689.html
2https://www.sebi.gov.in/
legal/circulars/aug-2023/mandating-additional-disclosures-by
-foreign-portfolio-investors-fpis-that-fulfil-certain-objective
-criteria_75886.html
3https://www.sebi.gov.in/
legal/circulars/mar-2024/amendment-to-circular-for-mandating-additional-
disclosures-by-fpis-that-fulfil-certain-objective-criteria_82418.html
4https://www.sebi.gov.in/
legal/circulars/jun-2024/disclosures-of-material-changes-and-other-obligations-
for-foreign-portfolio-investors_83939.html
5https://www.sebi.gov.in/
legal/circulars/jun-2024/framework-for-providing-
flexibility-to-foreign-portfolio-investors-in-dealing-
with-their-securities-post-expiry-of-their-registration_83940.html
6https://www.sebi.gov.in/
reports-and-statistics/reports/feb-2024/consultation-paper
-on-framework-for-providing-flexibility-to-fpis-in-dealing
-with-their-securities-post-expiry-of-their-registration_81210.html
7https://www.sebi.gov.in/
media-and-notifications/press-releases/apr-2024/sebi-board-meeting_83115.html
8https://ifsca.gov.in/
Viewer?Path=Document%2FLegal%2Ffacilitating-investments-by-
nris-and-ocis-into-indian-securities-through-schemes-or-funds-
in-an-ifsc02052024065353.pdf&Title=Facilitating%20investments
%20by%20NRIs%20and%20OCIs%20
into%20Indian%20securities%20
through%20Schemes%20%2F%20Funds%
20in%20an%20IFSC&Date=02%2F05%2F2024
9https://www.sebi.gov.in/
legal/circulars/jun-2024/participation-by-non-resident-indians-
nris-overseas-citizens-of-india-ocis-and-resident-indian-ri-individuals-
in-sebi-registered-fpis-based-in-international-financial-services-centres-in-india_84449.html
10https://www.sebi.gov.in/
media-and-notifications/press-releases/jun-2024/sebi-board-meeting_84448.html
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