Thursday July 14 2016

News Source: Global Disclosures

Focus: Foreign Investment

Type: General

Country: India




The Securities and Exchange Board of India (SEBI) has introduced the “Securities and Exchange Board of India (Foreign Portfolio Investors) (Amendment) Regulations, 2016”, amending the “Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2014”.

As per changes introduced, Regulation 22(2) introduces a requirement for foreign portfolio investors (FPI’s) to ensure that any transfer of offshore derivative instruments issued by or on behalf of it, is made subject to the following conditions:

  • Such offshore derivative instruments are made subject to fulfilment of sub-regulation (1); and
  • Prior consent of the FPI is obtained for such transfer, except when the persons to whom the offshore derivative instruments are to be transferred to are pre-approved by the foreign portfolio investor.

The amended regulation will restrict the transfer of participatory notes (p-notes) or offshore derivative instruments (ODIs) to entities authorised to use them and only following consent from the FPI. P-notes are issued by SEBI registered FPI’s to other overseas entities seeking exposure to the Indian markets without themselves registering directly with SEBI.

As per the SEBI regulations, no FPI can issue, subscribe to or otherwise deal in ODIs, directly or indirectly, unless they satisfy certain strict conditions.

These conditions, stipulate that ODIs can be issued only to persons who are regulated by an appropriate foreign regulatory authority and only after compliance to the prescribed know your client norms.

The conditions additionally provide that only the top-two categories of FPIs, including sovereign funds, central banks and multi-lateral institutions, and certain broad-based funds including insurers and pension notes, can issue or deal in ODIs. Category III FPIs, which include hedge funds and individual investors, cannot issue, subscribe to or otherwise deal in ODIs, directly or indirectly.

Following the introduction of the amendments made to “Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2014”, these conditions would now also apply for transfer of ODIs.

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