The Telegraph
Thursday , May 1 , 2014
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Sebi sets 10% threshold for FPIs

Mumbai, April 30: The Securities and Exchange Board of India (Sebi) today clarified that a foreign portfolio investor (FPI) will be allowed to buy additional shares in a company only if its holding is less than 10 per cent.

Last year, the market regulator had announced a new regime that would kickstart in June this year.

Foreign portfolio investors — a new classification that comes into being in June — will encompass all foreign institutional investors (FIIs), their sub-accounts (SA) and qualified foreign investors (QFIs). They will be divided into three categories according to their risk profile.

To provide more clarity on the new set of regulations, Sebi today said an FPI will be allowed to buy additional shares in a company only if its holding was less than 10 per cent. If an FII or its sub-accounts already hold more than 10 per cent in a company, they will not have to divest any shares after conversion to an FPI.

However, while such FPIs will be allowed to hold more than a 10 per cent stake in a company, they will be restricted from fresh share purchases till their holding falls below the threshold.

According to Sebi, an existing qualified foreign investor — both corporate bodies and individuals — will be allowed to buy, sell or deal in securities for a year from the date of commencement of FPI regulations or until it obtains a certificate of registration as an FPI, whichever is earlier. This class of investors will fall under Category-III FPIs.

Sebi said opaque structures — where the identity of investors are hidden — would not be eligible to register as FPIs. FPIs will have to submit declarations and undertakings as in the current regime.

“However, an FPI applicant will not be considered as an opaque structure and will be considered for grant of registration if it is required by its regulator or under any law to ring fence its assets and liabilities from other funds/ sub funds,’’ Sebi said.

In the case of such applicants, they will be eligible to be register as FPIs if a few conditions are met. For instance, the applicant will have to be regulated in its home jurisdiction, each fund/ sub fund in the applicant should satisfy a broad-based criteria, and the applicant should also give an undertaking to provide information regarding its beneficial owners when such an information is sought by Sebi.

The new regime divides FPIs into three categories. The KYC (know your client) requirements will be much simpler for FPIs.

Category-I (lowest risk category) includes foreign governments and government related foreign investors.

Category-II includes appropriately regulated entities, broad-based funds, university funds, university related endowments and pension funds.

Category-III include all others not eligible under the first two categories.