This alert summarizes recent notification by the Securities and Exchange Board of India (SEBI), with respect to Foreign Portfolio Investors (FPI) Regulations, 2019. The regulations have come into force with effect from 23 September 2019.
The 2019 Regulations have been issued pursuant to various recommendations made by the H.R. Khan Committee constituted by SEBI and aim to simplify and rationalize foreign investments made into India by portfolio investors.
Key changes - 2019 Regulations
- Reclassification of FPIs into two categories instead of three under the 2014 Regulations.
- Existing FPIs shall be re-categorized in Category I and II FPIs by their respective DDPs.
- The requirement to satisfy the broad base condition has been eliminated.
- Entities in IFSC shall be deemed to be non-resident in India and also appropriately regulated.
- FPIs holding securities or derivatives and not a valid COR to sell securities or wind-up their open positions in derivatives within one year from the date of publication of the 2019 Regulations.
- FPIs shall be deemed to have applied for surrender of its COR, if it fails to pay the prescribed fees within the due date and does not have cash/ security/ derivative positions in India.
- Where the investment in equity shares of a company by a FPI and/ or its investor group is 10% or higher of the total paid-up equity capital on a fully diluted basis of such company, the excess holding to be divested within 5 trading days from the date of settlement, failing which the entire investment would be reclassified as FDI holdings and no further portfolio investments would be permissible in such companies.
- Off-market sale of unlisted securities received by FPIs on account of involuntary corporate actions permitted.
- Off-market purchase/ sale of illiquid, suspended or delisted securities by FPIs permitted.
- ODIs can be issued only by/ to Category I FPIs.