Tag Archives: Foreign Portfolio Investors

monitoring foreign holding in depository receipts

SEBI vide its circular dated 1st October, 2020 has laid down a framework for monitoring foreign holding in depository receipts. Gist of the framework given below:

  1. Listed Company shall appoint one of the Indian Depository as the Designated Depository for the purpose of monitoring of limits in respect of Depository Receipts.
  2. The Designated Depository in co-ordination with Domestic Custodian, other Depository and Foreign Depository (if required) shall compute, monitor and disseminate the Depository Receipts (DRs) information as prescribed in the framework. The said information shall be disseminated on website of both the Indian Depositories. For this purpose, the Designated Depository shall act as a Lead Depository and the other depository shall act as a Feed Depository.
  3. Domestic Custodian shall:
    3.1.Provide one-time details of DRs in the format and manner as may be prescribed by the Indian Depositories.
    3.2.Provide the requisite information as may be prescribed by Designated Depository for the purpose of computation of information in respect of Depository Receipts as and when requested.
    3.3.Ensure that the underlying permissible securities, pertaining to a listed company, against which DRs are issued in the Permissible Jurisdiction, are held in a demat account, under a separate Type & Sub-Type as prescribed by the Indian Depositories for the purpose of issue of DRs.
    3.4.Provide certificate / declaration / information, to the Designated Depository in the prescribed format upon termination/cancellation of DR program. For this, the issuer or Foreign Depository shall be required to report such termination / cancellation to the Domestic Custodian.
  4. Procedure for the purpose of monitoring of limits
    4.1.The Designated Depository shall forward the list of such companies (ISINs) for which it will be monitoring the DR issuance to Feed Depository. For any addition or deletion of ISINs, the Designated Depository shall communicate to the Feed Depository regarding the same through Incremental information sent on a periodic basis.
    4.2.Feed Depository shall provide the ISIN wise demat holdings of investors tagged with separate sub-type to the Designated Depository on a daily basis.
    4.3.The Designated Depository shall ascertain the details of holdings pertaining to Foreign Depository lying under demat account(s) tagged under such separate Type & Sub-Type as well as other investors with ‘DR’ sub type held at both depositories and consolidate such holdings to arrive at the outstanding Permissible Securities against which the DRs are outstanding.
    4.4.Calculation of headroom i.e. ‘the limit up to which Permissible Securities can be converted to DRs’, may be undertaken in the following manner:

  1. 4.5.The Indian Depositories shall exchange with each other their respective list of companies, for dissemination of DR headroom related information, which shall be consolidated by both depositories and thereafter published on their respective websites.
  2. Re-issuance mechanism
    5.1.For the purpose of re-issuance of permissible securities, a Foreign Investor shall request SEBI registered Broker with requisite quantity of securities (based on available headroom) required for re-issuance of depository receipts which shall be forwarded to the Domestic Custodian.
    5.2.Based on last available headroom disseminated by Designated Depository, the Domestic Custodian shall grant approval (T- day where T is date of approval granted by Domestic Custodian) to such request received from SEBI registered Broker for re-issuance purpose which shall be valid for a period of 3 trading days (T+3) from the date of approval of request granted by Domestic Custodian.
    5.3.The Domestic Custodian shall report such request approvals along with requisite quantity granted to Designated Depository on same day (i.e. T day) and based on which the Designated Depository shall block the quantity for the purpose of calculation of Headroom.
    5.4.The Domestic Custodian shall report the status of utilisation of such approved request to the Designated Depository upon receipt of securities in the demat account of Foreign Depository for the purpose of calculation of Headroom. The domestic custodian shall report the final utilisation status of such approved request with respect to receipt of securities on D+1 basis (where D is a date of credit of security in the Foreign Depository’s account) before such time as may be prescribed by Designated Depository. In case of non-receipt of securities within the specified timeline, Custodian shall unblock the requisite quantity of approval granted and report the same to Designated Depository.
  3. Monitoring of Investor group limits
    6.1.FPI shall report the details of all such FPIs forming part of the same investor group as well as Offshore Derivative Instruments (ODI) subscribers and / or DR holders having common ownership, directly or indirectly, of more than fifty percent or on the basis of common control, to its Designated Depository Participant (DDP). The investor group may appoint one such FPI to act as a Nodal entity for reporting the aforesaid grouping information to its DDP in the format enclosed at Annexure A.
    Further, such Nodal FPI shall report the investment holding in the underlying Indian security as held by ODI subscriber and / or as DR holder, including securities held in the Depository Receipt account upon conversion (‘DR conversion’ account), to its Domestic Custodian on a monthly basis (by the 10th of every month) in the format enclosed at Annexure B. Similarly, the FPIs who do not belong to the same investor group shall report such investment holding details in the underlying Indian security as ODI subscriber and / or as DR holder, including
    securities held in the ‘DR conversion’ account, to its Custodian in the aforesaid format on a monthly basis (by 10th of the month).
    6.2.The DDP shall report FPI grouping information as reported by Nodal FPI to such Indian Depository (by 17th of the month) where FPI group demat accounts are held in the manner and format as specified by such Indian Depository. Similarly, the Custodian of Nodal entity (who also happen to be the DDP) shall report the investment holdings in the underlying Indian security as held by the ODI subscriber and / or DR holder in respect of the aforesaid FPI group on monthly basis to such Indian Depository (by 17th of the month) where FPI group demat accounts are held in the manner and format as specified by such Indian
    Depository.
    6.3.The Depository which monitors the FPI group limits shall club the investment pertaining to DR holding, ODI holding and FPI holding of same investor group and monitor the investment limits as applicable to FPI group in a Listed Indian company on a monthly basis. However, in respect of FPIs which do not belong to the same investor group, responsibility of monitoring the investment limits of FPI shall be with the respective DDP / Custodian. The Custodian of such FPIs not forming part of investor group shall club the investment as held by FPIs as well as
    investment as held by such FPI in the capacity of ODI subscriber and / or DR holder and monitor the investment limits as applicable to single FPI. In case where the investment holding breaches the prescribed limits, the Indian Depository / Custodian, as the case may be, shall advise the concerned investor / investor group, to divest the excess holding within 5 trading days similar to requirement prescribed under SEBI Circular dated November 05, 2019 on ‘Operational Guidelines for FPIs & DDPs under SEBI (Foreign Portfolio Investors), Regulations 2019 and for Eligible Foreign Investors.

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foreign portfolio investors

SEBI circular dated 31st August, 2020 directing futher relaxation in processing of documents of foreign portfolio investors, due to the ongoing covid pandemic and office lockdown in several situations. Gist of circular follows:

  1. SEBI vide Circular No. SEBI/HO/FPI&C/CIR/P/2020/056 dated March 30, 2020 had prescribed temporary relaxation in processing of documents pertaining to FPIs due to COVID-19. Further, vide Circular No. SEBI/HO/FPI&C/CIR/P/2020/104 dated June 23, 2020, the temporary relaxations were extended till August 31, 2020.
  2. It is understood that while lockdown has been lifted in many jurisdictions, certain jurisdictions continue to be under lockdown in view of the prevailing situation due to COVID-19 pandemic.
  3. In view of the representations received from various stakeholders, it has been decided that for the entities from jurisdictions which are still under lockdown, the temporary relaxations shall be extended to the entities from such jurisdictions till the time lockdown is lifted from such jurisdictions. However, in-transit applications shall be processed on the basis of provisions of aforesaid circular dated March 30, 2020.
  4. It may be noted that for the entities from jurisdictions where lockdown has already been lifted, the relaxation provided under the aforesaid circular dated March 30, 2020 shall not be applicable.
  5. All other terms and conditions specified in the aforesaid circular dated March 30, 2020 shall remain unchanged.
  6. This circular is issued in exercise of powers conferred under Section 11(1) of the Securities and Exchange Board of India Act, 1992 and Sub-rule 14(i) of Rule 9 of the Prevention of Money-laundering (Maintenance of Records) Rules, 2005 to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.

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foreign portfolio investors

https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11848&Mode=0

RBI circular on investment by foreign portfolio investors in debt securities in India.

Investment by Foreign Portfolio Investors (FPI): Investment limits

Attention of Authorised Dealer Category-I (AD Category-I) banks is invited to Schedule 1 to the Foreign Exchange Management (Debt Instruments) Regulations, 2019 notified vide Notification No.FEMA.396/2019-RB dated October 17, 2019, as amended from time to time and the relevant directions issued thereunder. A reference is also invited to A.P. (DIR Series) Circular No. 26 dated March 27, 2019 on the captioned subject.

2. Investment Limits for FY 2020-21

a. The limit for FPI investment in corporate bonds is increased to 15% of outstanding stock for FY 2020-21. Accordingly, the revised limits for FPI investment in corporate bonds, after rounding off, shall be as under (Table – 1):

Table-1: Limits for FPI investment in corporate bonds for FY 2020-21
(₹ Crore)
Current FPI limit 3,17,000
Revised limit for HY Apr 2020-Sep 2020 4,29,244
Revised limit for HY Oct 2020-Mar 2021 5,41,488

b. The revised limits for FPI investment in Central Government securities (G-secs) and State Development Loans (SDLs) for FY 2020-21 will be advised separately. Till such time, the current limits (as in Table – 2), shall continue to be applicable.

Table-2: Limits for FPI investments in G-Sec and SDL
(₹ Crore)
G-Sec General G-Sec Long Term SDL General SDL Long Term
FPI investment limits 2,46,100 1,15,100 61,200 7,100

3. AD Category–I banks may bring the contents of this circular to the notice of their constituents and customers concerned.

4. The directions contained in this circular have been issued under sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions/approval, if any, required under any other law.

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Mauritius – FATF grey list

SEBI press release dated 25th february 2020

Inclusion of Mauritius in the FATF list of “jurisdictions under increased monitoring”

The Financial Action Task Force on February 21, 2020, has placed Mauritius in the list of “jurisdictions under increased monitoring”, commonly referred to as the “grey list” and has stated the following:

“In February 2020, Mauritius made a high-level political commitment to work with the FATF and ESAAMLG to strengthen the effectiveness of its AML/CFT regime. Since the completion of its MER in 2018, Mauritius has made progress on a number of its MER recommended actions to improve technical compliance and effectiveness, including amending the legal framework to require legal persons and legal arrangements to disclose of beneficial ownership information and improving the processes of identifying and confiscating proceeds of crimes. Mauritius will work to implement its action plan, including by: (1) demonstrating that the supervisors of its global business sector and DNFBPs implement risk-based supervision; (2) ensuring the access to accurate basic and beneficial ownership information by competent authorities in a timely manner; (3) demonstrating that LEAs have capacity to conduct money laundering investigations, including parallel financial investigations and complex cases; (4) implementing a risk based approach for supervision of its NPO sector to prevent abuse for TF purposes, and 5) demonstrating the adequate implementation of targeted financial sanctions through outreach and supervision.”

There have been apprehensions among market participants that whether inclusion of Mauritius in the ‘grey list’ would have an effect on the registration of FPIs from Mauritius.

SEBI (Foreign Portfolio Investors) Regulations, 2019 inter-alia states that an applicant is eligible to become a FPI if it is not resident in the country identified in the public statement of FATF as- i) a jurisdiction having a strategic Anti-Money Laundering or Combating the Financing of Terrorism deficiencies to which counter measures apply; or ii) a jurisdiction that has not made sufficient progress in addressing the deficiencies or has not committed to an action plan developed with the FATF to address the deficiencies. This condition was also in SEBI (Foreign Portfolio Investors) Regulations, 2014.

It is noted from FATF website that when a jurisdiction is placed under increased monitoring, it construes that the country has committed to resolve swiftly the identified strategic deficiencies within agreed timeframes and is subject to increased monitoring. The FATF does not call for the application of enhanced due diligence to be applied to these jurisdictions, but encourages its members to take into account this information in their risk analysis. The intermediaries should take note of the same.

Additionally, FATF identifies jurisdictions that have significant strategic deficiencies in their regimes to counter money laundering, terrorist financing, and financing of proliferation. For all such countries, the FATF calls on all members and urges all jurisdictions to apply enhanced due diligence, and in the most serious cases, countries are called upon to apply counter-measures to protect the international financial system.  This list is often referred to as the “black list”. It is mentioned in FATF website that this was previously called “Public Statement”.

Therefore, FPIs from Mauritius continue to be eligible for FPI Registration with increased monitoring as per FATF norms.

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foreign portfolio investors

RBI circular dated 23rd january 2020 regarding voluntary retention route for foreign portfolio investors in debt market – review regarding

https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=11798&Mode=0

Attention of Authorised Dealer Category-I (AD Category-I) banks is invited to the Foreign Exchange Management (Debt Instruments) Regulations, 2019 notified vide Notification No. FEMA. 396/2019-RB dated October 17, 2019, as amended from time to time, and relevant directions issued thereunder. Attention is also invited to A.P. (DIR Series) Circular No. 34 dated May 24, 2019 (hereinafter Directions).

2. On a review, the following changes are made to the Directions governing investment through the Voluntary Retention Route (VRR).

  1. The investment cap is increased to Rs. 1,50,000 crores from Rs. 75,000 crores.
  2. FPIs that have been allotted investment limits under VRR may, at their discretion, transfer their investments made under the General Investment Limit to VRR.
  3. FPIs are also allowed to invest in Exchange Traded Funds that invest only in debt instruments.

3. The updated Directions are attached.

4. These directions are issued under sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions/ approvals, if any, required under any other law.

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foreign portfolio investors

RBI circular dated 23rd January 2020 regarding enhancement in investment limits in debt securities for foreign portfolio investors.

https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=11797&Mode=0

Attention of Authorised Dealer Category-I (AD Category-I) banks is invited to Foreign Exchange Management (Debt Instruments) Regulations, 2019 notified vide Notification No. FEMA. 396/2019-RB dated October 17, 2019, as amended from time to time, and the relevant directions issued thereunder. A reference is also invited to the A.P. (DIR Series) Circular No. 31 dated June 15, 2018 (hereinafter, Directions) read with A.P. (DIR Series) Circular No. 19 dated February 15, 2019.

2. On a review, the following changes are made to the Directions: –

a) In terms of paragraph 4(b) (i) of the Directions, short-term investments by an FPI shall not exceed 20% of the total investment of that FPI in either Central Government Securities (including Treasury Bills) or State Development Loans. This short-term investment limit is hereby increased from 20% to 30%.

b) In terms of paragraph 4(b) (ii) of the Directions, short-term investments by an FPI shall not exceed 20% of the total investment of that FPI in corporate bonds. This short-term investment limit is hereby increased from 20% to 30%.

c) FPI investments in Security Receipts are currently exempted from the short-term investment limit (paragraph 4 (b)(ii)) and the issue limit (paragraph 4(f)(iii)). These exemptions shall also extend to FPI investments in the following securities:

  1. Debt instruments issued by Asset Reconstruction Companies; and
  2. Debt instruments issued by an entity under the Corporate Insolvency Resolution Process as per the resolution plan approved by the National Company Law Tribunal under the Insolvency and Bankruptcy Code, 2016

3. The updated Directions are attached.

4. These directions are issued under sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions/ approvals, if any, required under any other law.

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