sebi - foreign portfolio investor regulations 2014

SEBI (FOREIGN

PORTFOLIO INVESTORS)

REGULATIONS, 2014

DEFINITIONS• FOREIGN INSTITUITONAL INVESTOR

• QUALIFIED FOREIGN INVESTOR

• FOREIGN PORTFOLIO INVESTORS

• OFF SHORE DERIVATIVE INSTRUMENT

• QUALIFIED DEPOSITORY PARTICIPANT

FOREIGN INSTITUTIONAL INVESTOR (FII) • FII means an institution

established or incorporated outside India which proposes to make investment in India in securities.

____________________________

• These institutions are registered with SEBI under SEBI (Foreign Institutional Investors) Regulations, 1995

QUALIFIED FOREIGN

INVESTORS

means A person who has open a

dematerialized account with the qualified depository participant as Qualified Foreign Investor.

FOREIGN PORTFOLIO INVESTORS

FOREIGN INSTITUTIONAL INVESTORS (F.I.I.)

QUALIFIED INSTITUTIONAL INVESTORS (Q.F.I.)

OFF SHORE DERIVATIVE

INSTRUMENT (ODIs)MEANS

• Any instrument, by whatever name called, which is issued overseas by a foreign portfolio investor against securities held by it that are listed on any recognized stock exchange in India, as its underlying.

• ODIs are investment vehicles used by overseas investors for an exposure in Indian equities or equity derivatives. These investors are not registered with SEBI, either because they do not want to, or due to regulatory restrictions.

Regulation 3: REGISTRATION

• FOREIGN PORTFOLIO INVESTOR must obtain Certificate as Foreign Portfolio Investor from Designated Depository Participant in FORM A along with the payment of requisite fees.

• Existing F.I.I. – subject to payment of conversion fees,

shall continue to deal in Indian securities till the expiry of its registration as F.I.I.

• Existing Q.F.I. – subject to payment of conversion fees, shall continue to deal in Indian securities for a period of one year from the date of commencement of these regulations.

Regulation 4:ELIGIBILITY

CRITERIA Applicant is a person not resident in India

( as per Income Tax Act, 1961)

Applicant is resident of a company whose

securities market regulator & SEBI has a

Bilateral MOU.

If the applicant is Bank – the central bank of

that country is member of Bank for

International Settlements.


CRITERIA Applicant is legally permitted to invest in

securities outside the country.

Applicant is a non-resident in India (as per

Income Tax Act, 1961)

Applicant is not resident in a country

identified in the public statement of Financial

Action Task Force having a strategic Anti

Money Laundering measures


CRITERIA Applicant is authorized by its MOA/AOA/by an

agreement to invest on its own or on behalf of its

clients.

Applicant has sufficient experience, is professionally

competent & financially sound.

Any other criteria as specified by the SEBI from time to

time.

CERTIFICATE SHALL BE GRANTED IN THE INTEREST

OF DEVELOPMENT OF SECURITIES MARKET.

Regulation 5: CATEGORIES of Foreign Portfolio

Investor

CATEGORY - I

CATEGORY - II

CATEGORY - III

CATEGORY – I

• Government

• Government related investors such as

Central Bank, Government agencies

• International or Multilateral organizations &

agencies.

CATEGORY – II Appropriately regulated Broad based funds

such as mutual funds, insurance companies etc. Regulated by – Securities market regulators / Banking

regulators / concerned foreign jurisdiction. Broad based fund – Funds established/incorporated

outside India with at least 20 investors & no single investor should have more than 49% holding.

Appropriately regulated PERSONS e.g. Banks, Asset Management Co. , Portfolio managers, etc.

Broad Based Funds not regulated but whose MANAGER is appropriately regulated.

CATEGORY - III• All others who are not eligible under category – I &

II

e.g. Charitable Trusts, Societies, Individuals, Corporate Bodies, etc.

CATEGORY - I

CATEGORY - II NO

NOCATEGORY-III

Regulation 6:FURNISHING

INFORMATIONAs required by the

Depository Participant or

S.E.B.I.

Applicant / Authorized Representative must

furnish any information or

clarification as may be required.

Regulation 7 :Certificate of Registration

Within 30 days of submission of application or furnishing of

additional information

DP shall grant the certificate of

Registration to the Foreign Portfolio

Investor in

FORM B of First Schedule

In Case of any grievance – applicant may approach S.E.B.I

Form – B : Certificate of Registration

Regulation 8:Rejection of Application

1.Application is incomplete.

2.Any misleading information.

3.Any False Representation of

facts.

4.Any material deficient event.In such cases, the application is liable to be rejectedby the designated DP, in writing, stating the reasons for such rejection.

Regulation 9The aggrieved applicant may apply to SEBI

for reconsideration of the decision of Designated DP,

within 30 days of receipt of communication

Regulation 10:Suspension, cancellation, or Surrender of Certificate

SUSPENSION / CANCELLATION

SURRENDER OF CERTIFICATE

Suspension or Cancellation of registration granted by SEBI shall be dealt as per SEBI (Intermediaries) Regulations, 2008 –

Where such action is taken when the person :-

1. Fails to comply with the conditions as required , or

2. Contravenes the provisions of the Act, Rules, Regulations of SEBI.

Any Foreign Portfolio Investor can surrender the certificate of registration

to the Designated Depository

Participant, who shall accept the

application after obtaining approval from SEBI to do

so.

Regulation 11Approval to act as

Designated DP

No person shall act as Designated DP unless it has obtained the approval of SEBI.

Application for approval to act as Designated DP shall be made to the SEBI through the depository in which the applicant is a participant.

Depository shall forward to SEBI, the application along with the recommendations & certifying the compliance of eligibility criteria, within 30 days from the date of receipt of application.

Regulation 11Approval to act as

Designated DP CUSTODIAN OFQUALIFIED SECURITIES & D.P.

which was already registered with SEBI

on the date of commencement of these regulations;

shall be deemed to be registered as designated DP.

Subject to the payment of prescribed fees .

Regulation 12Eligibility criteria of

DP• APPLICANT IS A PARTICIPANT REGISTERED

WITH SEBI

• APPLICANT IS CUSTODIAN OF SECURITIES REGISTERED WITH SEBI

• APPLICANT IS AN AUTHORIZED DEALER CATEGORY – 1 BANK AUTHORIZED BY Reserve Bank of India (RBI)

• APPLICANT HAS MULTINATIONAL PRESENCE THROUGH ITS BRANCHES or AGENCY

Regulation 12Eligibility criteria of

DP• APPLICANT HAS SYSTEM & PROCEDURE TO COMPLY

WITH THE REQUIREMENTS OF FINANCIAL ACTION TASK FORCE STANDARDS.

• APPLICANT HAS SYSTEM & PROCEDURE TO COMPLY WITH THE REQUIREMENTS OF PREVENTION OF MONEY LAUNDERING ACT.

• APPLICANT SATISFIES THE CONDITIONS TO ACT AS INTERMEDIARY as per SEBI(Intermediaries) Regulations, 2008

• Any other criteria as specified by SEBI from time to time.

Regulation 13:FURNISHING

INFORMATIONAs required by the

S.E.B.I.

Depository or

Applicant / Authorized Representative must

furnish any information or

clarification as may be required.

Regulation 14 & 15:Grant / Reject of

application

•SEBI may grant approval, if the participant satisfies the prescribed requirements including the payment of fees.

•SEBI may reject the application, if the application was not complete / false / materially misleading information was furnished

Regulation 16:RECONSIDERATION

• Before rejecting an application – Reasonable Opportunity of being heard is given. The reasons for Rejection is communicated in writing.

• Any aggrieved applicant may, within 30 days of receipt of such communication, apply to SEBI for reconsidering the decision.

• SEBI shall reconsider the application & after giving reasonable opportunity of being heard, convey its decision to the applicant in writing.

Regulation 17:VALIDITY OF APPROVAL

• The approvals granted by SEBI under these

regulations shall be VALID PERMANENTLY.

UNLESSSUSPENDED BY SEBI

WITHDRAWN BY SEBI

SURRENDERED BY Designated DP

Regulation 18 & 19:REGULATION 18SUSPENSION /

CANCELLATION

REGULATION 19SURRENDER OF

CERTIFICATESuspension or Cancellation of registration granted by SEBI shall be made if the Designated DP –

1. Fails to comply with the conditions as required , or

2. Contravenes the provisions of the Act, Rules, Regulations of SEBI.

SEBI after giving reasonable opportunity of being heard to the DP, shall pass an order to – Suspend or Withdraw the approval granted.

Any Designated Depository Participant can surrender the certificate

of registration to SEBI.

SEBI may impose such conditions as deemed fit

for the protection of investors & clients of the DP before accepting the

surrender request.

Regulation 20

No foreign portfolio investor shall make any investments in securities in India without complying with the provisions

of this chapter.

Regulation 21INVESTMENT

RESTRICTIONSONLY APPROVED SECURITIES:

• Securities in the primary & secondary markets

• Units of domestic mutual fund ( listed / unlisted )

• Units of Collective investment Scheme

• Derivative traded on Stock Exchange

• T-Bills & Government Securities

• Commercial Papers issued by Indian Company

• Rupee denominated credit enhanced bonds


RESTRICTIONSONLY APPROVED SECURITIES:• Security receipts issued by Asset Reconstruction Comp.• Debt Capital Instruments• Listed / Unlisted Non – convertible Debentures or bonds of

Indian Infrastructure company• Non – convertible Debentures or bonds issued by NBFC

categorized as Infrastructure Finance Comp. by RBI.• Indian Depository Receipts• Rupee denominated bonds / units issued by infrastructure

debt funds.• Any other instrument specified by SEBI from time to time.


RESTRICTIONSA Foreign Portfolio Investor shall transact in

Securities in India only by taking (BUY) or giving (SELL) the delivery of such securities;

EXCEPT:-• Any transaction in derivatives on recognized

Stock Exch.• Short selling transaction as per SEBI • Any transaction in securities pursuant to an

agreement entered into with the merchant banker in the process of market making under SEBI (ICDR) Regulations, 2009

• Any other transaction specified by the Board.


RESTRICTIONSA Foreign Portfolio Investor shall transact in Securities in India only through a Stock broker registered with SEBI; except:-

• Government Securities

• Securities falling under the purview of RBI

• Sale of securities in response to a letter of offer sent by

acquirer under SEBI Takeover Regulations, 2011

• Sale of securities in response to an offer made by any

promoter under SEBI Delisting regulations, 2009

• Sale of securities under SEBI Buy Back Regulations, 2009


RESTRICTIONSA Foreign Portfolio Investor shall transact in Securities in India only through a Stock broker registered with SEBI; except:-• Divestment of securities in response to an offer by

Indian company under Divestment Guidelines. • Any bid for or acquisition of securities in response to

an offer disinvestment made by Central / State Govt. • Any transaction in securities pursuant to an

agreement entered into with a merchant banker in the process of market making or subscribing the unsubscribed portion of issue.


RESTRICTIONS

•Foreign investor shall HOLD / DELIVER securities ONLY IN DEMATERIALISED FORM

•No transaction on the stock exchange shall be carried forward . i.e. Badla System


RESTRICTIONS

In respect of

DEBT SECURITIES -

FOREIGN PORTFOLIO

INVESTORS shall also

comply with terms &

conditions or directions

specified or issued by SEBI

or RBI from time to time


RESTRICTIONS• Securities shall be registered in the name

of the foreign portfolio investor as a beneficial owner for the purpose of Depositories Act, 1996


RESTRICTIONS

• The purchase of equity shares of each company by a single foreign portfolio investor or investor group shall be below 10 % of the total issued capital of the company.


RESTRICTIONS

Borrowing & Lending of Securities is allowed in accordance with framework specified by S.E.B.I


RESTRICTIONS

LOCK IN PERIORD

Applicable same as specified by

Government of India

Under itsFDI Policy

Regulation 22OFFSHORE DERIVATIVE

INSTRUMENTSNo Foreign Portfolio Investor shall issue / subscribe / other deal in off shore derivative instrument, unless the following conditions are satisfied :– • It is issued to persons who are regulated by

an appropriate foreign regulatory authority e.g. SEC, FCA, MAS, etc.

• such offshore derivative instruments are issued after compliance with ‘KNOW YOUR CLIENT’ (KYC) norms.

____________________________________________________Full disclosure is made to SEBI concerning the

terms & parties to off shore instrument.

Regulation 23Obligation &

Responsibilities of Foreign Portfolio

Investors• Comply with the regulations of these regulations.

• Inform SEBI & Designated DP in writing if any information which was submitted previously is found to be false.

• Inform SEBI & Designated DP if there is any material change in the information previously furnished

• Furnish any information or submit any document as required by SEBI or any other Government agency in India.

Regulation 23Obligation &

Responsibilities of Foreign Portfolio

Investors• Inform SEBI & Designated DP in case of any penalty,

pending litigation or proceeding , finding of inspections or investigation taken against by an overseas regulator.

• Obtains a Permanent Account Number (PAN) from Income Tax Department.

• Provide information, declarations & undertakings as required by the designated depository participant for compliance with Prevention of Money Laundering Act, 2002 & Financial Action Task Force Standards.

Regulation no.

Provision Covered

24 CODE OF CONDUCT AS PER 3rd SCHEDULE

25ENGAGEMENT OF DESIGNATED DEPOSITORY PARTICIPANTto avail its services for obtaining a certificate of registration as Foreign Portfolio Investor

26APPOINTMENT OF CUSTODIAN OF SECURITIESto monitor & maintain records of the investments and holdings of the Foreign Portfolio Investors

27APPOINTMENT OF DESIGNATED BANKfor opening of foreign currency denominated account & special non resident rupee account before making any investment in India.

28APPOINTMENT OF COMPLIANCE OFFICERwho shall be responsible for monitoring the compliance of the Act, rules, regulations, notifications, guidelines and instructions issued by the designated depository participant or SEBI or Central Govt.

Other regulations

Regulation no.

Provision Covered

29

INVESTMENT ADVICE & DISCLOSURE OF INTERESTA Foreign Portfolio Investor or its employees shall not directly or indirectly render any investment advice about any security in publicly accessible media, Unless a disclosure of their interest of Long position or Short Position in the said security is disclosed while rendering such service.

30MAINTAINANCE OF PROPER BOOKS OF ACCOUNTS by the foreign portfolio investor, including the bank statements.Also the FPI shall intimate the designated DP in writing the location where such books of accounts will kept or maintained.

31PRESERVATION OF BOOKS OF ACCOUNTS, RECORDS & DOCUMENTS for a minimum period of 5 years.

Other regulations

Regulation no.

Provision Covered

32 OBLIGATIONS & RESPONSIBILITIES OF DESIGNATED DEPOSITORY PARTICIPANT

33MAINTAINANCE OF PROPER BOOKS OF ACCOUNTS by the Designated Depository Participant, including the bank statements.Also the DP shall intimate SEBI in writing the location where such books of accounts will kept or maintained.

34

APPOINTMENT OF COMPLIANCE OFFICERwho shall be responsible for monitoring the compliance of the Act, rules, regulations, notifications, guidelines and instructions issued by SEBI or Central Govt.Compliance officer shall immediately & independently report to the SEBI if any non – compliance is observed by him.

35INFORMATION TO SEBI & RBI Every Designated Depository Participant shall submit RBI & SEBI any information, record, or document in relation to Foreign Portfolio Investor as may be required.

Other regulations

Regulation no.

Provision Covered

36

INVESTMENT ADVICE & DISCLOSURE OF INTERESTA Designated Depository Participant or its employees shall not directly or indirectly render any investment advice about any security in publicly accessible media,

Unless a disclosure of their interest of Long position or Short Position in the said security is disclosed while rendering such service.

37SEBI’s RIGHT TO INSPECTSEBI may suo moto or on the receipt of information or complaint relating to Designated Depository Participant.

38NOTICE BEFORE INSPECTIONSEBI shall give notice before inspection of a period not less than 10 days

Other regulations

Regulation no.

Provision Covered

39 OBLIGATION OF DESIGNATED DEPOSITORY PARTICIPANT IN CONNECTION WITH INSPECTION BY THE BOARD

40SUBMISSION OF INVESTIGATION REPORT TO SEBI BY THE INSPECTING OFFICER

41AFTER CONSIDERING THE INVESTIGATING REPORT SEBI SHALL TAKE SUCH ACTION AS DEEMED FIR & APPROPRIATE BY BOARD AS PER SEBI ( INTERMEDIARIES) REGULATIONS, 2008.

42 SEBI’s POWER TO APPOINT AN AUDITOR TO INSPECT OR INVESTIGATE THE BOOKS OF ACCOUNTS & RECORS OR AFFAIRS OF THE APPLICANT OR DESIGNATED DEPOSITORY PARTICIPANT

43 SEBI SHALL BE ENTITLED TO RECOVER THE FEES PAID TO AUDITOR & EXPENSES INCURRED FROM THE DESIGNATED DEPOSITORY PARTICIPANT OR APPLICANT .

Other regulations

Regulation no.

Provision Covered

44 A FOREIGN PORTFOLIO INVESTOR, DEPOSITORY PARTICIPANT, DEPOSITORY OR ANY OTHER PERSON WHO CONTRAVENES ANY OF THE PROVISIONS OF THESE REGULATIONS SHALL BE LIABLE FOR ACTION UNDER SEBI (INTERMEDIARIES) REGULATIONS, 2008 & DEPOSITORY ACT, 1996.

45 POWER OF BOARD TO ISSUE CLARIFICATIONS

46 AMENDMENTS TO OTHER REGULATIONS ( FOURTH SCHEDULE)

47 REPEAL, RECISSION AND SAVING

Other regulations

Link to the notification

http://www.sebi.gov.in/cms/sebi_data/attachdocs/1389083605384.pdf



CBDT : Notification no. 9/2014

Impact of notification• For the purpose Income Tax, now FPI would be

considered as FII and therefore tax procedure applicable on F.I.I. would be applicable on F.P.I.

• The key rates under Sec. 115AD of Income Tax Act, 1961, now applicable on FPI regime are:- Interest Income is taxable @ 20% STCG on sale of listed equity shares and units of an

equity oriented fund, on which STT is paid is taxable @15%

Other STCH @30%. LTCG on sale of listed or unlisted securities that are sold

off the stock exchanges are taxable @ 10%.

Impact of notification• The PAYER is not required to withhold the tax at

the time of making remittance of the sale proceeds from India.

• The benefit under section 194LD where the F.I.Is enjoyed a reduced 5% withholding tax rate with respect to interest earned between 1st JUNE 2013 to 1st June 2015 on rupee denominated bonds of Indian Companies or Government Securities would now be extended to FPIs.

• OBLIGATION of Designated DP to set up a mechanism for tax deduction and payment in compliance with the directions issued by the Income Tax Department/RBI/CBDT from time to time.

ANANND KANKANICompany Secretary+91-9707056733

sebi - foreign portfolio investor regulations 2014

Economy & Finance