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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.
Regulation 4:ELIGIBILITY
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
Regulation 4:ELIGIBILITY
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
Regulation 21INVESTMENT
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.
Regulation 21INVESTMENT
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.
Regulation 21INVESTMENT
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
Regulation 21INVESTMENT
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.
Regulation 21INVESTMENT
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
Regulation 21INVESTMENT
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
Regulation 21INVESTMENT
RESTRICTIONS• Securities shall be registered in the name
of the foreign portfolio investor as a beneficial owner for the purpose of Depositories Act, 1996
Regulation 21INVESTMENT
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.
Regulation 21INVESTMENT
RESTRICTIONS
Borrowing & Lending of Securities is allowed in accordance with framework specified by S.E.B.I
Regulation 21INVESTMENT
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