Mumbai: Ushering in a new regime for overseas investments in Indian capital markets, Sebi on Saturday announced new Foreign Portfolio Investor (FPI) regulations to put in place easier registration process and operating framework for such entities.
The new class of investors, FPIs, would encompass all FIIs (Foreign Institutional Investors), their sub-accounts and Qualified Foreign Investors (QFIs), and would be divided in three categories as per their risk profile.
The KYC (Know Your Client) requirements and other registration procedures would be much simpler for FPIs compared to current practices.
The Sebi has also decided to grant them a permanent registration, as against the current practice of granting approvals for one year or five years to the overseas entities seeking to invest in Indian markets.
At a meeting held here today, the Sebi board approved the new Sebi (Foreign Portfolio Investors) Regulations, 2013 to bring about these wide-ranging changes.
Sebi said in a statement after the board meeting that the new regulations have been framed keeping in view the provisions of existing norms for FIIs and QFIs, as also the recommendations made by a 'Committee on Rationalization of Investment Routes and Monitoring of Foreign Portfolio Investments' chaired by former Cabinet Secretary K M Chandrasekhar.
Under the new norms, all existing FIIs, Sub Accounts and QFIs will be eventually merged into this new investor class to be known as FPIs.
Sebi also approved setting up 'Designated Depository Participants (DDPs)', which would register FPIs on behalf of the market regulator subject to compliance with KYC norms.
Sebi had last month already issued instructions regarding risk-based KYC for FPIs, as per their risk categories.
The Category I FPIs, which would be the lowest risk entities, would include foreign governments and government related foreign investors, "Category II' FPIs would include "appropriately regulated broad based funds, appropriately regulated entities, broad-based funds whose investment manager is appropriately regulated, university funds, university related endowments, pension funds etc".
The Category III FPIs would include all others not eligible under the first two categories,
Sebi said that all existing FIIs and Sub Accounts may continue to buy, sell or otherwise deal in securities under the FPI regime.
All existing QFIs can also continue to buy, sell or otherwise deal in securities till the period of one year from the date of notification of this regulation. In the meantime, they may obtain FPI registration through DDPs.
The registration granted to FPIs by the DDPs on behalf of Sebi would 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.
Sebi also said 'Category I' and 'Category II' FPIs will be allowed to issue, or otherwise deal in offshore derivative instruments (ODIs), directly or indirectly.
However, 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 KYC norms.
Sebi-registered custodian of securities will be deemed to be DDP subject to payment of fees as prescribed in the regulations.
Regulator-approved Qualified Depository Participant who are not meeting the DDP eligibility criteria may operate as DDP for a period of one year, Sebi said.
"DDPs shall carry out necessary due diligence and obtain appropriate declarations and undertakings before registering FPIs," Sebi said.
Sebi would not charge any fees for granting registration to Category I foreign investors, while the regulator would take an annual payment of USD 1,000 and USD 100 from Category II and Category III overseas entities, respectively, till the validity of their registration.
Also, fees of USD 1,000 would be paid by the existing FIIs, sub-accounts and QFIs to obtain registration certificate to act as an FPI.
FPIs would be allowed to invest in securities in the primary and secondary markets.
These would include unit of schemes floated by domestic mutual funds, treasury bills, dated government securities, equity derivatives, commercial papers, and Indian Depository Receipts, among others.
These measures come at a time when concerns are being raised about outflows of foreign capital and weakening of the rupee against the dollar and other foreign currencies.
The new norms are expected to make it much easier for the foreign investors to enter the country and make investment decisions.