Sebi Board likely to discuss ease of doing business for FPIs, AIFs and PMS; T+0 settlement

The Sebi Chairperson Madhabi Puri Buch has said that the optional T+0 settlement will most likely be enrolled from March 28.

The market regulator is expected to put forth proposals on ease of doing business for foreign portfolio investors (FPIs), alternative investment funds (AIFs) and portfolio managers, and on implementing optional T+0 settlement before its Board at its next meeting.

The Securities and Exchange Board of India (Sebi) is to meet with its Board on March 15. The regulator's January meeting with its Board was postponed.

Ease of doing business proposals for FPIs include relaxing the timelines for disclosure of material changes, providing a framework for FPIs to dispose off their securities after their registration has expired and providing exemptions to certain FPIs from additional disclosures on granular details as mandated by the August 24, 2023, circular.

On February 7, the regulator had proposed that FPIs disclose Type I material changes within seven working days of the occurrence of the change and that the supporting documents be provided within 30 days. Type II material changes need to be informed and supporting documents submitted within 30 days. This brings the FPI Regulations in line with the Prevention of Money-laundering (Maintenance of Records) Rules 2005 (PMLR).

On the same day, the regulator had also released a consultation paper on a framework for FPIs to dispose off their securities once their registration had expired. According to the paper, if FPIs fail to liquidate their securities holdings within prescribed timelines, their securities remain frozen in the demat accounts. The paper stated that, as of June 30, 2023, demat accounts of FPIs were holding securities worth Rs 3,300 crores.

This status quo causes share capital of such companies to be blocked from trading and leaves the demat accounts of these FPIs vulnerable to misuse. Therefore, the regulator proposed giving the FPIs an option to regularise an expired registration with additional payment of late fee and dispose off their securities within a set timeline.

Last August, Sebi had asked certain FPIs to provide granular details regarding their beneficial ownerships, economic interest and control up to the level of all natural persons.

These were related to FPIs who held more than 50 percent of their Indian equity Assets Under Management (AUM) in a single Indian corporate group and to those that individually or along with an investor group held more than Rs 25,000 crore of equity AUM in Indian markets.

But, through a consultation paper issued later, on February 27, 2023, the regulator proposed that certain FPIs be exempted from this requirement.

It suggested that funds with concentrated holdings in entities with no identified promoter group, and certain Category I University Funds and University Related Endowments FPIs be exempted from providing these granular details.

The ease of doing business proposal for AIFs is for allowing Category I and II funds to pledge their investee companies' shares to raise debt for these companies, while the one for portfolio managers is on mandating that their distributors register with an industry body and allow digital onboarding of clients.

These categories of funds are not allowed to use leverage except to meet temporary funding requirements. But to allow AIFs to participate more deeply in infrastructure building, the regulator said that there is merit in allowing these funds to pledge their equity holdings in infrastructure sector investee companies, to help these investee companies raise debt on their books.

For Portfolio Management Services (PMS), to make oversight of their distributors easier, the regulator has proposed the mandatory registration of these distributors with the Association of Portfolio Managers in India (APMI). The regulator has also proposed the digital onboarding of clients and doing away with the handwritten note in which the clients confirm that they have understood the fees and charges.

The Sebi Chairperson Madhabi Puri Buch has said that the optional T+0 settlement will most likely start from March 28.

India is set to become the second country after China to operate on a short settlement cycle of one day. In most other major economies, trade settlement is typically completed within two days.

T+0 is to be rolled out in phases. In the first phase, the cycle will be implemented for trades taken till 1:30 pm. The settlement of funds and securities will be completed by 4:30 pm.

In Phase 2, there will be an optional instantaneous trade-to-trade settlement for both funds and securities. In this, trading will be done till 3:30 pm. After Phase 2 of optional instantaneous settlement is implemented, Phase 1 of optional T+0 will be discontinued.

The regulator had floated this proposal through a consultation paper on December 22, 2023, nearly a month after its last meeting with the Board.