INDIA: SEBI publishes risk management framework for the India Foreign Portfolio Investors Regulations

Friday May 16 2014

The Securities and Exchange Board of India has published a risk management framework for Foreign Portfolio Investors (FPI) under the SEBI (Foreign Portfolio Investors) Regulations, which enter into effect in June 2014.

Stock exchanges and clearing corporations are directed to take following measures with regard to trading and risk management of FPI trades:

Margining of trades undertaken by FPIs in the Cash Market

The trades of FPIs in Category I, II & III shall be margined on a T+1 basis in accordance with SEBI circular MRD/DoP/SE/Cir-18/2008 dated May 22, 2008. However, the trades of FPIs who are Corporate bodies, Individuals or Family offices shall be margined on an upfront basis as per the extant margining framework for the non-institutional trades.

Position limit of an FPI in the Equity Derivatives Segment and for Interest Rate Futures

Category I & II FPIs shall have position limits as presently available to FIIs. Category III FPIs shall have position limits as applicable to the clients.

Facility for allocation of trades

The following framework shall be implemented to facilitate allocation of trades of a FPI to other FPIs:

• Entities who trade on behalf of FPIs shall inform the stock brokers of the details of FPIs on whose behalf the trades would be undertaken.
• The stock broker, in turn, shall inform the stock exchanges the details of such related FPIs.
• Stock exchanges shall put-in place suitable mechanism to ensure that allocation of trade by a FPI is permitted only within such related FPIs.

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