The market regulator has proposed that the timeline for foreign portfolio investors (FPIs) to report material changes be modified, for ease of doing business.
As of now, FPIs are required to disclose material changes--such as change in any direct or indirect change in its structure or ownership or control, change in regulatory status, and in any information that has bearing on the certificate granted--within seven days.
In a consultation paper released on February 7, the Securities and Exchange Board of India (Sebi) stated that the regulator has received various representations from market participants on the relaxation of this timeline.
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The regulator has suggested that the changes be classified into two -- Type I and Type II--and that Type I be disclosed within seven working days within the occurence of the change and supporting documents be provided within 30 working days; and Type II be reported with supporting documents within 30 days.
Type I would include change in jurisdication; name change on account of acquisition/merger/demerger/restructuring/ownership/control, any corporate action that results in cessation of the FPI, restructuring of the legal form, change in regulatory status (regulated to unregulated fund) and so on.
It would also include changes that impact any exemption in terms of SEBI Circular dated August 24, 2023. In that circular, the regulator had mandated additional disclosures for certain FPIs who have a concentrated exposure to a single Indian corporate group and those who hold more than Rs 25,000 cr of equity AUM in the Indian markets, subject to exemptions.
Difficulties faced
Representations made to Sebi on the current regulations raised several problems. They said that there are difficulties in making these disclosures within the set timeline, especially with disclosures relating to change in beneficial owner.
They have submitted that Public Retail Funds (PRFs) often have thousands of underlying investors and the holding of such investors in the FPI can fluctuate on a daily basis. Also, investors often participate in funds through intermediaries, and these intermediaries collect and verify client data.
The representative said that, although such intermediated funds rarely have an investor who can be called a beneficial owner (who has holding over 10 percent threshold), monitoring this would place a heavy compliance burden on the funds and intermediaries/investors. According to the representatives, monitoring this would require exchange of data on a daily basis.
Such granular data may not be beneficial to the regulator too, they added.
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