SEBI Amends Circular to Require Additional Disclosures from FPIs Meeting Specific Criteria

Monisha Chaudhary

30 Mar, 2024

The Securities and Exchange Board of India (SEBI) issued a circular to amend the requirements for additional disclosure by Foreign Portfolio Investors (FPIs) to meet specific criteria. SEBI, through its circular, exempts FPIs with more than 50% of Indian equity assets under management (AUM) in a corporate group from specific disclosure requirements to meet the prescribed conditions. SEBI also outlines specific procedures to track and manage investment concentration in apex companies within the corporate groups. This issued circular came into immediate effect.

Background and Previous Requirements:

SEBI has previously made necessary additional disclosers for Foreign Portfolio Investors (FPIs) to meet the specific criteria outlined in Circular No. SEBI/HO/AFD/AFD-POD-2/CIR/P/2023/148 dated August 24, 2023. FPIs meeting the criteria mentioned under Para 8 of this circular were duly exempted from specific disclosure requirements, with some conditions.

Amendment and Exemptions:

Moreover, SEBI, in addition to existing criteria, has introduced specific exemptions for FPIs with over 50% of its Indian equity Assets under Management (AUM) in a corporate group. Such FPIs are likely to be exempted from certain disclosures mentioned in Para 7 of this circular and must comply with the below-mentioned conditions-

• The apex company of the corporate group must have no identified promoter.
• The FPI must hold not more than 50% of its Indian equity AUM in the corporate group.
• The composite holdings of all such FPIs in the apex company should be less than 3% of its total equity share capital.

Monitoring and Public Disclosure:

Custodians and Depositories are duly responsible to track the utilization of 3% limit for apex companies without having identified promoters on a regular daily basis. In case the limit is met or gets breached, then depositories must be keep this information public while starting for the trading on the very next day. 

 Investment Realignment and Additional Disclosures:

 FPIs which exceeds the 50% concentration criteria must either realign their investments below the threshold within a period of 10 trading days or will make additional disclosures as prescribed in the circular dated 24^th August, 2023. Such requirement will be waived, if 3% of cumulative limit for the apex company has not met during the specified 10 trading days. 

Continuity of Provisions:

All existing other provisions of the circular dated 24^th Aug, 2023, will remain unchanged.

Compliance Deadline Extension:  

FPIs meeting objective criteria specified under Para 7(a) of the circular dated August 24, 2023, by October 31, 2023, but fail to realign their portfolio within a specified time frame or being exempted, are required to make additional disclosures till March 12, 2024. Meanwhile, the FPIs meeting conditions specified under Para 2 as of March 12, 2024, are exempt from actions for non-disclosures as per the circular dated August 24, 2023.

Implementation Process:

The process flow to implement the circular will be framed by the pilot Custodians and DDP Standards Setting Forum (CDSSF) and must be adapted by all the DDPs/Custodians in consultation with SEBI.

Immediate Effect:

The provision laid down in this circular will come into force immediately upon its issuance.

Legal Basis:

SEBI issued this circular under the powers conferred by Section 11(1) of the Securities and Exchange Board of India Act, 1992, read with Regulations 22(1), 22(6), 22(7), and 44 of SEBI (FPI) Regulations, 2019, to protect and safeguard the investor interests and to regulate the securities market.

Conclusion-

SEBI has amended its circular to require additional disclosures from Foreign Portfolio Investors (FPIs) meeting specific criteria. The amendments aim to streamline reporting requirements while ensuring transparency and investor protection. The immediate implementation of these changes showcases SEBI’s commitment towards the securities market and safeguarding investor interests, as mandated by relevant regulations.