At a time when foreign investors have been selling Indian shares in huge quantum, the Securities and Exchange Board of India (SEBI) has simplified the compliance and operational requirements for foreign portfolio investors (FPIs), to make the regulatory framework more investor friendly.
The SEBI board, which met here on Wednesday, decided to do away with the requirement that every FPI should have at least 20 investors — known as broad-based in regulatory parlance — while simplifying the KYC (or Know-Your-Customer) document requirement for overseas investors.
“The key focus of the proposed regulations is to simplify and rationalise the existing regulatory framework for foreign portfolio investors in terms of easing the operational constraints and compliance requirements,” stated a SEBI release.
The regulator has also allowed central banks of countries that are not members of Bank for International Settlement (BIS) to register as FPIs in India since, as per SEBI, such entities are “relatively long term, low risk investors directly/indirectly managed by the government”. FPIs have cumulatively sold shares worth over ₹22,000 crore in July and August.
“This is a much-needed boost to the FPI route, which had been languishing on account of multiple issues in the past few months,” said Shruti Rajan, partner, Cyril Amarchand Mangaldas.
“Relaxing the broad-based criteria will open up the FPI route to a whole new category of entities that were unable to meet the 20-investor test. The most interesting part... lies in the references made to rationalisation of offshore derivative instruments . This has historically been a matter of debate within the industry and it will be interesting to see what changes are finally implemented,” she added.
SEBI has expressed concerns over the recent proposal of the government to increase the minimum threshold of public holding in listed companies from the current 25% to 35%.
“... there are certain aspects which need to be further examined as to what the right level to mandate is,” SEBI Chairman Ajay Tyagi told the media, post the board meeting. He highlighted the fact that a significant number of listed public sector undertakings are yet to comply with the 25% public holding norm and have been given time till August 2020 to comply and also that the primary market was not doing well currently.
“All these issues need consideration and examination, so time being we will examine all those issues,” added Mr. Tyagi. The regulator has amended the Prohibition of Insider Trading Regulations to include a clause to reward whistle-blowers up to ₹1 crore if the information leads to a disgorgement order of at least ₹1 crore.
The regulator has also brought in clauses to protect the informant from victimisation in the form of termination, suspension or demotion, among other things.
The SEBI said it had gathered details about alleged financial irregularities at CG Power and Industrial Solutions and was looking into the matter. “We have obtained some details of what is going on with them. We will look into it,” Mr. Tyagi said.
(With PTI inputs)