CIRCULAR
SEBI/ HO/ AFD/ AFD – PoD – 2/ CIR/ P/ 2023/ 148 August 24, 2023
To,
1. Foreign Portfolio Investors (FPIs)
2. Designated Depository Participants (“DDPs”) and Custodians
3. The Depositories
4. The Stock Exchanges and Clearing Corporations
5. Registrars to an Issue and Share Transfer Agents
6. Listed Companies
Dear Sir / Madam,
Subject: Mandating additional disclosures by Foreign Portfolio Investors (FPIs)
that fulfil certain objective criteria
A. Background:
1. Certain FPIs have been observed to hold concentrated portion of their equity
portfolio in a single investee company/ corporate group. Such concentrated
investments raise the concern and possibility that promoters of such investee
companies/ corporate groups, or other investors acting in concert, could be
using the FPI route for circumventing regulatory requirements such as that of
disclosures under Substantial Acquisition of Shares and Takeovers
Regulations, 2011 (SAST Regulations) or maintaining Minimum Public
Shareholding (MPS) in the listed company.
2. Recognizing the inherent risks of opportunistic takeover/ acquisition of Indian
companies, the Government of India (GoI) issued Press Note 3 (PN3) dated
April 17, 2020, requiring an entity of a country that shares land border with India,
or where the Beneficial Owner (‘BO’) of an investment into India is situated in
or is a citizen of any such country, to invest only under the Government route.
While PN3 is not applicable to FPI investments, there are concerns that entities
with large Indian equity portfolios could potentially disrupt the orderly
functioning of Indian securities markets by misusing the FPI route.
3. Further, as regards identification of BOs of FPIs, while the thresholds for this
purpose are specified in Prevention of Money Laundering (Maintenance of
records) Rules, 2005 (‘PMLR’), it is often observed that no natural person is
identified as the BO of several FPIs based on economic interest or ownership
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interest, since each investor entity in the FPI may be below the threshold
prescribed in the PMLR. However, there is a possibility that the same natural
person may hold a significant aggregate economic interest in the FPI via
various investment entities, each of which are individually below the threshold
for identification as a BO as prescribed in PMLR.
B. Regulatory Amendments:
4. To mitigate the concerns stated above, a need was felt to obtain granular
information of persons having any ownership, economic interest, or control in
some objectively identified FPIs. With this objective, Regulations 22 (6) and
22(7) have been inserted in the SEBI (FPI) Regulations, 2019 (‘FPI
Regulations’), vide SEBI (Foreign Portfolio Investors) (Second Amendment)
Regulations, 2023, notified on August 10, 2023.
5. In terms of Regulations 22 (6) and 22 (7) of the FPI Regulations, the criteria
rendering FPIs liable to provide information or documents in relation to the
persons with any ownership, economic interest, or control, in the FPI, and the
manner for providing the same is being specified in the below sections of this
circular.
6. While the broad principles for this purpose are being outlined in this circular,
the detailed mechanism for independently validating conformance of FPIs with
the conditions and exemptions mentioned in the circular shall be spelt out in the
Standard Operating Procedure (SOP) that shall be framed and adopted by all
the DDPs/ Custodians, in consultation with SEBI. The SOP shall ensure
consistent practice across the industry to avoid regulatory arbitrage amongst
DDPs/ Custodians. The SOP shall be made public and updated from time to
time by the DDPs/ Custodians, in consultation with SEBI.
C. Criteria for submission of disclosures by FPIs in terms of Regulations 22(6)
and 22(7):
7. 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, shall be provided by FPIs that fulfil any
of the criteria mentioned below to the respective DDPs in the format specified
in the above referred SOP,:
a. FPIs holding more than 50% of their Indian equity Assets Under
Management (AUM) in a single Indian corporate group;
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b. FPIs that individually, or along with their investor group (in terms of
Regulation 22(3) of the FPI Regulations), hold more than INR 25,000
crore of equity AUM in the Indian markets.
Note:
I. Economic interest means returns from the investments made by
the FPI.
II. Ownership interest means ownership of shares or capital of the
entity or entitlement to derive profits from the activity of the entity.
III. Control shall have the same meaning as mentioned in Regulation
2(f) of the FPI Regulations.
8. However, FPIs having a broad based, pooled structure with widespread
investor base, ownership interest by Government or Government related
investors, etc. may not pose significant systemic risk. Further, certain genuine
circumstances may also prevent some FPIs from adhering to the limits specified
in Para 7 above. Considering the same, FPIs satisfying any of the criteria listed
below shall not be required to make the disclosures as specified in Para 7
above:
a. Government and Government related investors registered as FPIs under
Regulation 5 (a) (i) of the FPI Regulations.
b. Public Retail Funds (‘PRFs’) as defined under Regulation 22(4) of the
FPI Regulations, subject to independent validation of the same by DDPs/
Custodians.
c. Exchange Traded Funds (with less than 50% exposure to India and
India-related equity securities) and Entities listed on specified
Exchanges of the permissible jurisdictions as may be notified by the
Board from time to time. To start with, the list of permissible jurisdictions
and exchanges as mentioned in Annexure A to SEBI circular
SEBI/HO/MRD2/DCAP/CIR/P/2019/146 dated Nov 28, 2019 shall be
considered as permissible exchanges and jurisdictions for this clause.
d. Pooled investment vehicles registered with/ regulated by a Government/
regulatory authority in their home jurisdiction/ country of incorporation/
establishment/ formation, where:
i. their holding in an Indian corporate group is below 25% of their
overall global AUM at a scheme level, in case of FPIs falling under
Para 7 (a) above; or
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ii. their equity AUM in the Indian markets is below 50% of their overall
global AUM at a scheme level, in case of FPIs falling under Para
7 (b) above;
subject to independent validation of disclosure of such holdings by the
DDPs/ Custodians.
‘Scheme’ for the purpose of this clause shall mean pooled investment
vehicles with structures similar to ‘Scheme’ as defined in SEBI (Mutual
Funds) Regulations, 1996.
e. FPIs that are unable to liquidate their excess investments due to
statutory restrictions (such as lock in restrictions of anchor investors in
IPOs, moratoriums, freeze on accounts or shares due to regulatory
orders etc.), till the time such restrictions exist.
f. Newly registered FPIs, for the first 90 calendar days from the date of
settlement of first trade by the FPIs in equity segment in India.
g. FPIs in the process of winding down their investment and having
intimated to their DDP, their intention to surrender their FPI registration.
Such FPIs shall be required to bring down their holdings to ‘NIL’ within
180 calendar days from the date of their intimation for surrender, failing
which the account of the FPI shall be blocked for purchase as well as
sale, and the FPI shall be liable for regulatory action as stipulated by the
Board.
The modalities for compliance with the above shall be detailed in the
above referred SOP.
9. The constituents of FPI investor group which collectively hold more than INR
25,000 crore of equity AUM in the Indian markets, shall be exempted from
making the additional disclosures if the investor group consists of FPIs that
qualify for exemption in terms of any of the criteria in Para 8 above and the net
equity AUM of the investor group, after deducting the AUM of such exempted
FPIs, falls below INR 25,000 crore.
After making the aforesaid deductions of AUM of such exempted FPIs, in case
the equity AUM of the remaining FPIs of the investor group continues to exceed
INR 25,000 crore, only the non – exempted FPIs of the investor group shall be
liable for making the disclosures in terms of Para 7 and consequent actions, if
any, as stated in the section below.
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10. Also, where the entity identified on a look through basis in terms of Para 7
above, falls under any of the sub - categories specified in Para 8 above, further
identification of entities having ownership interest, economic interest, or control
rights of such an entity on look through basis, shall not be required.
D. Timelines:
11. Disclosures specified under Para 7 shall not be required to be made by FPIs in
case their investments are realigned with the prescribed thresholds, within the
below mentioned timelines/ conditions:
a. FPIs holding more than 50% of their Indian Equity AUM in a single Indian
corporate group: 10 trading days from the date on which such FPIs
exceed the threshold. Such FPIs shall not make fresh purchases of the
equity shares of any company belonging to such Indian corporate group,
during the next 30 calendar days from the date on which the FPIs
exceeded the threshold.
b. FPIs, including their investor group, holding more than INR 25,000 crore
of equity AUM in the Indian markets: 90 calendar days from date on
which such FPIs exceed the threshold. Accounts of all FPIs, individually
or belonging to such investor group, shall be blocked for further equity
purchases until the holding is brought below INR 25,000 crore of equity
AUM in the Indian markets.
c. FPIs required to make disclosures specified in Para 7 above as on the
date of applicability of this circular: 90 calendar days from the date of
applicability of this circular.
After realignment, in case the FPI’s holdings exceed the prescribed threshold
on a subsequent date, the timeline for FPI to realign with the limits shall restart
from such subsequent date.
12. FPIs whose investments continue to exceed the prescribed threshold post
expiry of timelines mentioned in Para 11 shall make the disclosures as specified
in Para 7 to their DDPs within 30 trading days from the expiry of such timelines.
Non – disclosures in this regard shall render the registration of the FPI invalid
and the FPI shall not make any further purchases. Further, the FPI shall
liquidate its securities and exit the Indian securities market by surrendering its
FPI registration within 180 calendar days from the day the certificate becomes
invalid.
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13. During the aforementioned 180 calendar days, the investee companies shall
restrict the FPI’s voting rights to its actual shareholding or its shareholding
corresponding to 50% of its equity AUM on the date its FPI registration is
rendered invalid, whichever is lower. The mechanism for implementing the
same shall be spelt out in the SOP.
14. Disclosures made as per Para 7 of this circular shall be considered material
information in terms of Regulation 22(1)(c) of the FPI Regulations till the time
the FPI’s holdings are in excess of the prescribed thresholds in Para 7.
15. Depositories shall introduce new freeze reason codes and Stock Exchanges
shall put in place appropriate mechanism / systems to ensure compliance of
the above and to facilitate blocking of the accounts of the FPIs.
16. For monitoring compliance with the 50% exposure limit in a single corporate
group, a repository containing names of companies forming a part of each
Indian corporate group, shall be publicly disseminated on the websites of Stock
Exchanges/ Depositories.
17. The provisions of this circular shall come into force with effect from November
01, 2023.
18. This Circular is issued in exercise of the powers conferred under Section 11(1)
of the Securities and Exchange Board of India Act, 1992 read with Regulations
3(2), 22(1), 22 (6), 22 (7) and 44 of SEBI (FPI) Regulations, 2019, and Sub-rule
14 (i) of Rule 9 of the Prevention of Money-laundering (Maintenance
of Records) Rules, 2005, to protect the interest of investors in securities and to
promote the development of, and to regulate the securities market.
19. This Circular is available at www.sebi.gov.in under the link “Legal ---Circulars”.
Yours faithfully,
Vikash Narnoli
Deputy General Manager
Tel No.: 022 – 26449161
E-mail: vikashn@sebi.gov.in
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