The Securities and Exchange Board of India is reassessing strict extra disclosure rules for foreign portfolio investors. Sebi aims to improve market transparency without causing funds to sell shares. A source said, "It wants to rationalise the rules so that the twin objective is met." New relaxations are currently being considered.
Synopsis
The Securities and Exchange Board of India (Sebi) is reassessing its strict extra disclosure protocols for foreign portfolio investors. These protocols demand comprehensive investor data from funds with specific asset levels and concentrated equity risks. Sebi aims to reinforce market transparency while averting measures that could destabilize the financial landscape.
Mumbai: India's capital market regulator is taking a relook at the onerous extra disclosure rules for foreign portfolio investors (FPIs).
The Securities and Exchange Board of India (Sebi) is expected to release a consultation paper for feedback on possible relaxation of the regulations that require FPIs above a certain asset size or having concentrated equity exposure to a company or a corporate group to share granular details of investors in the funds.
"Sebi had sounded out some of the market participants and fund custodians. What we understand is that it wants to rationalise the rules so that the twin objective, to enhance transparency and prevent circumvention of regulations by FPIs without causing any collateral damage like driving a fund to sell shares to lower its holding, is met," a person familiar with the discussions told ET.
One of the suggestions includes fixing a low threshold equity holding in a company below which an FPI would not have to give details of their investors even if the fund is focused on one or two firms or group.
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Also, it has been proposed that FPI with concentrated investments in professionally-run companies with no identifiable promoters and public sector undertakings should be exempted from additional disclosure requirements. The Sebi spokesperson did not comment on the matter.
Under the additional disclosure regulations, which came in the wake of US firm Hindenburg Research's allegations against the Adani Group, an FPI is required to reveal the ultimate beneficial owners, down to the last natural persons, of all investors in the fund if it crosses either of the following thresholds: (1) if more than 50% of the India equity assets under management is in a company or a single corporate group; (2) if a fund's AUM in Indian equities is ₹50,000 crore or more. The disclosure rule also kicks in if multiple FPIs having common ownership or control together breach the limits.
A source said, "While Sebi has till now exempted certain FPIs like sovereign funds, public retail funds, and university funds, but those who want to focus on a few stocks as per their strategy are caught in the detailed disclosure rule. Some rationalisation, particularly, deciding an FPI's maximum holding in a company under which the fund could be spared from additional disclosures."
Among other things, the rules are aimed at preventing violation of minimum public shareholding regulation by restraining promoters or connected entities from using FPIs to mask concentrated holdings; sidestepping takeover norms; and blocking circumvention of Press Note 3 which requires government approval for investments from land-bordering countries.
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