SEBI mandates granular disclosure for certain Foreign Portfolio Investors
Instructs that they will be required to identify all entities with any ownership, economic interest, and controlling rights
To bring greater transparency to the Indian capital markets, the Securities and Exchange Board of India (SEBI) has mandated additional disclosures from certain Foreign Portfolio Investors (FPIs) having concentrated holdings in a single company or a group firm.
The financial markets regulator has specified that the new framework will come into effect from 1 November.
Market experts believe that the move has its genesis in the Adani Group issue, where SEBI couldn’t identify the beneficial owners of some FPIs in Adani stocks. That’s because the existing regulations were lax in identifying the true owners of many investments.
SEBI stated, “The 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 fulfill certain criteria” to designated depository participants.
FPIs holding more than 50 percent of their equity Asset Under Management (AUM) in a single corporate group will have to comply with the requirements for additional disclosures. Also, those with an overall holding in Indian equity markets of over Rs.25,000 crores will need to comply with the new norms.
However, FPIs having a broad-based pooled structure with a widespread investor base, ownership interest by the government, or government-related investors, may not pose significant systemic risk. Therefore, government and related entities, including the central banks, sovereign wealth funds, and public retail funds (registered as FPIs) are exempted from making such revelations.
SEBI stated that FPIs, holding more than 50 percent of their Indian equity AUM in a single Indian corporate group, can bring down their exposure within 10 trading days. After that, they’ll have to make additional disclosures. These FPIs will not make fresh equity purchases of any company belonging to the corporate group during the next 30 calendar days from the date of exceeding the expiry date.
Similarly, FPIs holding over Rs.25,000 crores of equity AUM in the Indian markets will have 90 calendar days to bring down their holding, after which they will have to make additional disclosures.
The markets regulator warned that accounts of all such FPIs would be blocked for further equity purchases until the holding was brought below Rs.25,000 crores.
The circular further read that FPIs whose investments continue to exceed the prescribed threshold after the expiry of the timelines would be given 30 trading days to make disclosures, after which their registration would become invalid.
The FPI will then have to liquidate its securities and exit the Indian market by surrendering its registration within 180 calendar days from the day the certificate became invalid. During the 180 days, the investee companies will restrict the FPIs' voting rights to its actual shareholding or its shareholding corresponding to 50 percent of its equity AUM on the date its registration was rendered invalid.
For monitoring compliance with the exposure limit in a single corporate group, a repository containing names of companies forming a part of each Indian corporate group will be publicly disseminated on the websites of stock exchanges and depositories, SEBI held.