cross-training seminar-csd familiarization program may 30, 2012 foreign institutional...

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Cross-Training Seminar-CSD Familiarization Program May 30, 2012

Foreign Institutional Investor/Foreign Direct Investments/Qualified Foreign Investor and Custodian Processes

Mumbai, India

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Agenda

30th May, 2012Mumbai, India

1) Foreign Institutional Investors / Sub-Account Account Set-Up SEBI Registration Investment Structure Investments & Other Regulations

2) Foreign Direct Investment Regulation & Investment Modes

3) Qualified Foreign Investor

Account Set-Up Investments & Other Regulations

4) IL&FS Securities Services Limited (ISSL) Custodial Services

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Foreign Institutional Investor

• A FII is an entity established or incorporated outside India which proposes to make investments in India.

• The following entities / funds are eligible to get registered with SEBI as a FII:

Pension Funds Mutual Funds

Investment Trust Insurance or reinsurance Companies

Foundations or Charitable Trusts Bank

Endowment Funds University Funds

Asset Management Companies Investment Manager / Advisor

(on behalf of Broad Based Funds) (on behalf of Broad Based Funds)

Institutional Portfolio Managers Trustees (on behalf of Broad Based Funds) (on behalf of Broad Based Funds)


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FII Sub-Account

•Sub-account includes those foreign Corporates, and Institutions, Funds or

Portfolios established or incorporated outside India on whose behalf

investments are proposed to be made in India by a FII.

• The following entities / Funds are eligible to get registered as a Sub-Account

University Fund Endowment Fund

Charitable Trust / Society Broad-based Fund or Portfolio

Foreign Corporate Foreign Individual.

Proprietary fund of a registered FII


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FII / Sub-Account – Account Set-up

• Application for registration to be made by the FII to SEBI in the prescribed forms • The SEBI Registration fees is $5000 and $1000 for the FII and Sub-Account respectively and the registrations are perpetual.

• The FII must appoint the following Market Intermediaries:

SEBI approved Domestic Custodian - any entity registered with SEBI to carry on the activity of providing custodial services in respect of securities

RBI approved Designated Bank - any bank in India which has been authorized by the Reserve Bank of India to act as a banker to FII.

SEBI registered Broker - any broker approved to executes trade on Stock Exchanges

Tax Advisor - To obtain PAN details, Compute and File Tax returns on behalf of the FII.


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FII / Sub-Account – Account Set-up

Code Purpose Applied by Approx Time frame

FII Registration number Unique number given by SEBI for all FII’s

FII 15 days

SUB Account Unique number given by SEBI for all sub-accounts

FII 15 days

Unique Client Code Given by the exchange, required by broker for trading

Custodian 2-3 days

CDSL / NSDL ID Depository ID required by the NSDL and CDSL

Custodian 1 day

BSE Code With the BSE clearing House

Custodian 1 day

Custodial Participant Code

With the NSE Clearing House

Custodian 1 day

Permanent Account Number

Unique number given by tax authorities

Tax Advisor 2-3 Weeks


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FII – SEBI RegistrationISSL works with clients to complete the FII / Sub accounts application form. Client forwards to ISSL to review before

submission to SEBI

SEBI informs ISSL / FII of queries. ISSL advises client, who arranges for amendments if the applications / clarification to

SEBI queries.

ISSL advises client on receipt of approval from SEBI

ISSL reverts to client with suggestions / Clarifications on FII / Sub – Accounts approval process

ISSL reviews application

Changes Required

NO YES

Application In order

ISSL works with clients to complete the FII / Sub accounts application form. Client forwards to ISSL to review before

submission to SEBI

SEBI reviews the application forms & supporting documents. ISSL follows up with SEBI on status of the application

SEBI has queries on the application

SEBI issues approval to the FII / Sub-Account. Copy of approval is sent to ISSL.

ISSL follows up with SEBI on status of the application

NO

YES


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Foreign Institutional Investor – Investment Structure

FII making proprietary investments

FII’s investing through sub-accounts

Multiple Investment Manager (MIM) structure

FII making Proprietary Investments

FII Investment Manager

Sub Account FundSub Account FundSub Account Fund

FII Investing Fund

Sub Account FundPool managed by IM 3




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FII / Sub-Accounts - Investments & Other Regulations

• Financial Instruments available for FII investments:

Securities in primary and secondary markets including shares, debentures and warrants of companies, unlisted, listed or to be listed on a recognized stock exchange in India;

Units of mutual funds; Government Securities, other debt instruments; Derivatives traded on a recognized stock exchange; Commercial papers. Security Receipts

• For Normal FII (70-30 Route), the total investment in Equity and Equity related instruments, shall not be less than 70% of aggregate of all investments. For100% Debt FII, 100% investments, shall be made in debt securities only.


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FII / Sub-Accounts - Investments & Other Regulations

SEBI / RBI Limits on FII Equity Investments

• FII, on its own behalf, shall not invest in equity more than 10% of total issued

• capital of an Indian company.

• Investment on behalf of each sub-account shall not exceed 10% of total issued capital of an India company.

• For the sub-account registered under Foreign Companies/Individual category, the investment limit is fixed at 5% of total issued capital.

• These limits are within overall limit of 24% / 49 % / 74% or the sectoral caps, as applicable and prescribed by Government of India / Reserve Bank of India.

• Must adhere to disclosure / compliance requirements in The SEBI (Substantial acquisition of shares and takeovers, SAST) Regulations and The SEBI (insider trading)

• Must repatriate fund proceeds subject to deduction of applicable taxes and Forex deals must be executed from underlying securities transactions.


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Foreign Direct Investments

• Foreign Direct Investment (FDI) is a cross border Long-term Investment by an overseas investor into a Company with an objective to establish a ‘Lasting Interest’ and an active participation in the Management & Governance of the Enterprise.

• FDI investment is considered to be more reliable & dependable on account of its Long term nature as compared to the Foreign Portfolio Investment, which generally has a shorter Investment horizon.

• While the Portfolio Investor has an over riding objective of realizing Large capital gains, the traditional Foreign Direct Investors does not start off with a pre -conceived plan of exiting & generally stays invested over large periods of time.


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FDI – Regulations & Investment Modes

• The Indian FDI is regulated by the FDI Policy guidelines administered by the Ministry of Commerce. The Department of Industrial Policy and Promotions (DIPP) & Foreign Investment Promotion Board (FIPB) assist the Government in the FDI Policy formulation.

• The Government has mandated the Reserve Bank of India to monitor the Administration & Compliance aspect of the FDI.

• The FDI policy have been progressively liberalized since the early Nineties to facilitate large scale Foreign Investment in Indian Companies. Automatic & Prior Government Permission are the two routes available for making Foreign Direct Investments in Indian Companies.

Automatic Route : FDI up to 100% is allowed under this route in all Sector/Industries except where specific restrictions are placed by the Government of India. Investments in the Sectors / Industries to the extent permitted under the Automatic Route do not require any prior approval from the Government, RBI or any other Agency.


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FDI – Regulations & Investment Modes

Government Permission Route : Investment in the Sector and Industries not covered under the Automatic Route require prior approval of the Government. Specific approval in these sector are required to be obtained from the FIPB, Department of Economic Affairs & Ministry of Finance.

• Global Depository Receipts, American Depository Receipts, Foreign Currency Convertible Bonds and External Commercial Borrowings are some of the often used modes of FDI Investments of the Overseas Investors into Indian companies. Government clearances are not required for such issuances except when the RBI sectoral caps are exceeded or the Investment does not fall under the Automatic Route.

• Any Indian company receiving Overseas FDI under the Automatic or the Government Approval scheme is obliged to submit the Investment details to the RBI.

Company to report within Thirty days, the details of the receipt of amount of consideration along with the KYC report of the overseas investor to RBI.

Details of the share issuance to the overseas investor to be reported to the RBI within Thirty days from the date of issuance, along with the prescribed supporting documents.


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Qualified Foreign Investor

• A Qualified Foreign Investor (QFI) is a person not resident in India & not registered with SEBI as a FVCI, FII or a Sub-Account

• The QFI entity should be a resident of the country that is: Compliant with Financial Action Task Force standards and Signatory to International Organization of Securities

Commission. The following are the list of countries that are FATF compliant.

• The QFIs should meet the SEBI prescribed Know Your Customers (KYC) guidelines.

Australia Finland Luxembourg South Africa

Austria Germany Mexico Spain

Belgium Greece New Zealand Sweden

Brazil Switzerland Hong Kong Norway

China India Portugal Turkey

Denmark Italy Republic of Korea Japan

United Kingdom United States of America

Kingdom of the Netherlands

Singapore


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Qualified Foreign Investor - Account Set-up

• The QFI must appoint a SEBI approved Qualified Depository Participant (QDP). The QDP serves as an entry point for the QFI for its investments.

The QDP shall complete the KYC of the QFI after ensuring that the end beneficial ownership of the QFI is not a resident in India.

It has to ensure compliance with all SEBI requirements, the PML acts and FATF Rules and regulations. It shall obtain PAN on behalf of the QFI. It shall set up a Securities Depository account to hold the investments of the QFI. It shall assist the QFI set up and open Trading account with SEBI registered Brokers to execute trades on the Exchanges. It shall set up and open ‘Single Rupee Pool Account’ with the Authorized Bank (Category – 1 Bank) for the purpose of repatriation and remittance of QFI funds.


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QFI – Investments & Other Regulations

• A QFI can Purchase and Sell Listed equity shares and Mutual Funds through the QDP. It shall transact only on “Delivery basis”.

• It can apply for Equity shares in Public issues & make purchase as against Right issues.

• It can receive Bonus shares and shares arising out of Stock spilt & Consolidation.

• It can tender Equity shares in Open offers and Buy-Back of listed companies.

• The total shareholding by an individual QFI shall not exceed Five percent of the paid up Equity capital of the investee Company at any point of time.

• The aggregate shareholding of all QFIs shall not exceed ten percent of paid up equity capital of the investee company.

• The limits are over and above the FII and NRI investment ceilings prescribed under the Portfolio Investment Scheme. However, these limits are within the overall limit of 24% / 49% / 79% or the sectoral caps as applicable and prescribed by the Govt of India / Reserve Bank of India.


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QFI – Investments & Other Regulations

• The QFI sales proceeds to be repatriated by the QDP to the Overseas Bank account of the QFI within Five working days after deduction and remittances of tax to the relevant Tax authorities.

• The QFI funds to be repatriated back to the Overseas Bank account of the QFI within Five working days in case no purchases are executed.

• Dividend income received to be repatriated back (after deduction and remittance of tax) to the Overseas Bank account of the QFI within Five working days or to be invested in fresh purchases.

• The QFI investments details to be reported to the depositories on a Daily basis by the QDP.


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Investment Options

Investment Spectrum Route of Investment

FII FDI QFIUnlisted Equity

Listed Equity

Primary Issuances

ADR / GDR

Government Debt

Corporate Debt

Foreign Currency Convertible Bonds

External Commercial Borrowings

Mutual Funds

Exchange Traded Derivatives


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Foreign Investments

Other InvestmentsInvestments on non-Repartiable

basis

Foreign Portfolio Investments

Foreign Direct Investments

Govt. Route

FII’NRI’s, PIOs

G-Sec NCDs,

etc

NRIs, PIOs

FIIsNRIs, PIOs

Automatic Route

Foreign Investments – Schematic Representation


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Groups

•General Auditing•General Services•Finance•Human Resources•Legal, Compliance

•Marketing and Communications•Risk Management•Technology

Custodial Services

Fund Accounting

Professional Clearing Member for Equities/ Commodities/Currencies

Depository Services

Funding Products

Banking & Back Office Services

Securities Lending & Borrowing

Other Services

Business

ISSL

IL&FS Securities Services Limited (ISSL)-----------------------------------------------------------------------------------------------------------


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What sets us apart

Trusted Brand

• 17 year legacy of Leadership, Trust, Stability and Prestige

• India's largest non-conflict of business, Professional Clearing Member and Custodian

• Only DP providing clients a state-of-art electronic platform (e-Koole) for transactions on NSDL ,CDSL

• Largest Clearing Member in SLB segment

• Amongst the top 3 Non-AMC Custodians

• Recommended best practices to the benefit of Industry and clients

Product Range

• Custodial Services for FII's, Institutions, MFs, HNI, PMS and NRI clients

• Leading Depository Participant Services on NSDL and CDSL and catering to Demat Services on

NCDEX,MCX,NSEL

•Clearing & Settlement Services on the Equity, Currency & Commodity Derivatives Segment of BSE, NSE,MCX-

SX,USE,NCDEX & MCX

• Lending Products: 'Loan Against Demat Shares', 'Loan Towards Purchase of Shares', 'IPO & ESOP Financing'

• Fund Services to complement your PMS business

• One stop shop for other convenience services: Loans, PAN, NPS, NSR

• Securities Lending & Borrowing



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Our Reach

• Operating seamlessly from 25 pan-India centers. Understanding needs and delivering client satisfaction

• Professionals, with highly diversified skill set, understanding local requirements, ensuring consistent

deliveries

• Seamless technology backbone enabling online transaction processing across 83 centers

Technology Prowess

• In-house IT team of over 70 professionals ensures quicker, appropriate, customized and faster solutions

• Own state-of-the-art Tier III Data Center operational 24 * 7

• High level of redundancy ensuring maximum performance and continuity

• Fully equipped DR site with backup systems updated regularly

• IT systems audited by external auditor for best in class performance

Our Strengths

• Rich capital market experience of large number of Man years.

• Unmatched scale and efficiency. Over 90 million transactions processed successfully in 2011

• Amongst the largest capital base in the Industry

• Cost advantages and economies of scale

• Customized solutions



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Trade Servicing

Asset Servicing

Value Added Services

Client Servicing

Trade ProcessingTrade Settlement

Securities safekeeping & reconciliationCorporate ActionsMarket Claims Income

Proxy ServicesTax support ServicesSecurities Lending

Reporting One-point client contact

Account Set upTransition Mgmt

Account

IL&FS Securities Services Limited – Custodial Services-----------------------------------------------------------------------------------------------------------


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System

•Robust platform with focus on Straight through processing•Customized reporting catering to each client’s unique needs

Control Environment

•Parallel Quality Assurance review•Documented SOPs ad Process specific•Checklists•Stratification controls per process•Periodic Internal audit reviews

Scale

•Capability to handle multi-class assets across clients viz. Equity, Debt, Mutual Funds etc.•Clients can settle cash/securities through multiple banks / depositories• Only Custodian to provide recordkeeping at client level for Prime brokerage Clients•Customized, web- enabled Reports downloadable in multiple formats

People

•A highly talented workforce with continuous focus on:•-Regular assessment of staff through competency assessment tests•-Up-gradation of skills•Retention of top talent staff with <3% attrition of management staff•Specialist Product team

The ISSL Custody Advantage

IL&FS Securities Services Limited – Custodial Services-----------------------------------------------------------------------------------------------------------


Mumbai, India25 30th May, 2012

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Thank You

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