Sebi ushers in big reforms for overseas investors

Written by fe Bureau | Mumbai | Updated: Oct 6 2013, 08:26am hrs
The Securities and Exchange Board of India (Sebi) has approved the draft guidelines for foreign portfolio investors (FPIs) to enable existing overseas investors to migrate to a new platform, wherein there will only be a single category of foreign investors.

The Sebi board, which met on Saturday, approved the draft Sebi (Foreign Portfolio Investors) Regulations, 2013, which will allow existing foreign institutional investors (FIIs), sub-accounts and even qualified foreign investors (QFIs) to be merged into a new investor class termed as FPIs.

The Sebi (Foreign Portfolio Investors) Regulations, 2013, have been framed keeping in view the provisions of Sebi (Foreign Institutional Investors) Regulations, 1995, qualified foreign investors (QFIs) framework and the recommendations of the committee on rationalisation of investment routes and monitoring of foreign portfolio investments, said a release issued by the regulator.

The watchdog has also laid down that Sebi-approved designated depository participants (DDPs) will register FPIs on behalf of the regulator, subject to compliance with KYC know your client requirements. Last month, Sebi issued details regarding risk-based KYC for FPIs.

Sebi said all existing FIIs and sub accounts can continue to trade in the market under the FPI regime.

Further, existing QFIs can continue to deal in securities for one year from the date of notification of this regulation while initiating action to obtain FPI registration through DDPs.

The Sebi move comes nearly five months after it accepted the recommendations of the KM Chandrasekhar committee on rationalisation of investment routes for overseas investors. As per Sebi, FPIs would need to get registered in any one of the three categories, depending on their risk profile and the quantum of regulatory control.

While category I will include government and government-related foreign investors, appropriately regulated broad-based funds, including university funds, university-related endowments and pension funds, will be clubbed in category II. The rest of the entities, namely hedge funds, will be registered as category III FPIs.

More importantly, category I and category II FPIs will be allowed to issue or deal in offshore derivative instruments (ODIs), directly or indirectly. However, the FPI needs to be satisfied that such ODIs are issued only to persons who are regulated by an appropriate foreign regulatory authority after ensuring compliance with know your client norms, said Sebi.

While the registration granted to FPIs by the DDPs on behalf of Sebi will be permanent,

unless suspended or cancelled by the regulator, FPIs will be allowed to invest in all those securities wherein FIIs are allowed to invest.

Meanwhile, regulator-approved qualified depository participant and custodian of securities registered with Sebi can register as DDPs. Such entities would require to carry out necessary due diligence and obtain appropriate declarations and undertakings before registering any FPI.