Sebi may ease entry norms for FPIs, allow security receipts listing by ARCs

These proposals would be discussed at the board meeting of Sebi tomorrow

Markets regulator Sebi is likely to relax entry norms for foreign portfolio investors (FPIs) willing to invest in the Indian markets, senior officials said.

It may ease some rules, including expanding the eligible jurisdictions for registration by including countries with diplomatic tie-ups with India.

Besides, the regulator may rationalise "fit and proper" criteria for FPIs as well as simplify broad-based requirements for such investors.

The move is aimed at easing direct registration for FPIs and avoiding participatory notes (P-notes).

In addition, Sebi may allow listing of security receipts issued by an asset reconstruction company (ARC) on the exchange platform.

Security receipt, in market parlance, means a receipt or other security issued by a securitisation company or reconstruction company.

This will enhance capital flows into the securitisation industry and particularly be helpful to deal with bank non-performing assets (NPAs).

These proposals would be discussed at the board meeting of Securities and Exchange Board of India (Sebi) tomorrow.

According to the new proposal, more jurisdictions such as Canada would be able to access the market due to change in FPI Regulations.

Category I and II FPIs, which are essentially government and regulated entities, should not need any additional documentation and procedural requirements. However, Category III FPIs should continue to be subject to such requirements.

In a major revamp, Sebi in 2014 had released norms that had clubbed different categories of foreign investors into a new class called FPIs.

Under the regime, FPIs have been divided into three categories as per their risk profile and the KYC (know your client) requirements, while other registration procedures have been made simpler for them.

Further, rationale of broad-based criteria may be extended in other cases wherein the applicant funds have other institutional investors -- sovereign wealth fund, insurance/reinsurance companies, pension funds, Exchange Traded Funds (ETFs) as their underlying investors.

Currently, an FPI is considered to be broad-based in case such overseas investor has a bank as an underlying investor.

Broad-based fund means a fund, established outside India, which has at least 20 investors, with no investor holding more than 49 per cent of the shares or units of the fund.

In case broad-based fund loses its status due to an exit of some offshore global investors then it may not result in immediate loss of Category II status. Three months time should be given to such funds to regain such status.

The regulator may discontinue the requirements of seeking its prior approval in case of a change in local custodian or designated depository participants (DDPs).

At the time of change of local custodian/DDP, the new DDP should be permitted to rely on the registration granted by previous DDP at the time of transition. The move is expected to avoid duplicate efforts and incremental documentation by the FPIs as well as the DDPs.

Further, private bank/merchant bank should invest on behalf of their clients provided details of beneficial owners are available and will be provided as and when required by regulators.

Besides, banks do not have any secrecy arrangement with investors and secrecy laws do not apply to the jurisdictions in which the bank is regulated for such relaxation.