SEBI Offers New Guidelines On Investment Through Segregated Portfolios Of ODIs And FPIs

SEBI Offers New Guidelines On Investment Through Segregated Portfolios Of ODIs And FPIs

Seeks public comments on the proposals till 27 August

The Securities and Exchange Board of India (SEBI) has proposed a new framework to improve disclosure and regulatory requirements for investments made through Offshore Derivative Instruments (ODIs) and segregated portfolios of Foreign Portfolio Investors (FPIs).

Presently, these have few disclosure and regulatory requirements compared to regular FPIs. This includes exemptions from the additional disclosure requirements introduced in August last.

To address this gap, the market regulator proposed additional disclosure requirements applicable to certain FPIs. It should apply to ODI subscribers, and a segregated portfolio of FPIs with sub-funds or separate classes of shares or equivalent structure.

The concentration and size criteria will apply directly to ODI subscribers, monitored by issuers and their DDPs/depositories. For computing breach of concentration criteria by an FPI, the Indian equity assets under management (AUM) of each segregated portfolio will be considered independently.

The FPI issuing the ODI or having a segregated portfolio must ensure its compliance. The FPIs must furnish detailed information about their ownership, economic interests, and control of each person.

The rules apply to FPIs meeting either of the criteria holding more than 50 percent of its Indian equity AUM in a single Indian corporate group (concentration criteria) or more than Rs.25,000 crore of equity AUM in the Indian markets, either individually or along with their investor group (size criteria).

The SEBI explained that the ODIs could no longer reference or hedge with derivatives. Only cash equity, debt securities, or permissible FPI investments should be allowed, and be hedged on a one-to-one basis.

The markets regulator stated, "The ODI issuers will be prohibited from issuing ODIs with derivatives as reference/underlying and hedging their ODIs with derivative positions on a stock exchange.”

Further, ODIs should be issued through a separate FPI registration with no proprietary investments allowed.

It added, "Over the years, the value of outstanding ODIs has also been decreasing; however, potential regulatory arbitrage still exists between investments made through ODIs/FPIs with segregated portfolios with sub-fund structures vis-a-vis the regular FPI route.”