Operational Guidelines for Designated Depository Participants
Summary
This circular establishes operational guidelines for Designated Depository Participants (DDPs) to facilitate the registration of Foreign Portfolio Investors (FPIs) under SEBI regulations. It mandates that each FPI must engage a DDP, which must be the same entity as its Custodian of Securities, prior to investing in Indian securities. The document outlines specific procedures for application scrutiny, conditional registration, and the surrender of FPI registration certificates. Section 4.0 mandates the clubbing of investment limits for FPIs belonging to the same investor group, defined by over 50% common shareholding or control. Section 5.1 requires FPIs to promptly inform their DDP of material changes, such as shifts in control or restructuring, which triggers a re-assessment of eligibility. Section 5.2 outlines procedures for FPIs seeking permission to hold and disinvest residual securities after registration expiry, while Section 5.3 details requirements for name changes. This section outlines operational guidelines for Designated Depository Participants regarding changes in FPI status, taxation obligations, and grandfathering provisions. It clarifies the eligibility criteria for
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Each FPI shall engage a DDP before making investment in Indian securities market. At all times the DDP and the Custodian of Securities (“Custodian”) of the FPI shall be the same entity.
The application received for grant of registration as FPI in the format prescribed under the Regulations (Form A) shall be scrutinized by the DDP on the parameters as described below:
The following checklist may be used by DDP for scrutiny of documents relating to registration of FPI. Part A includes Application Form-A, PCC/MCV Declarations, fees, and additional undertakings. Part B covers regulatory requirements such as name, category, overseas regulator status, incorporation details, IOSCO/BIS/FATF compliance, legal permissibility, authorization, track record, fit and proper status, PCC/MCV status, investor group membership, defaulter list check, regulatory action check, and eligibility criteria compliance.
In case of an applicant being a bank or its subsidiary, the respective DDP shall forward the relevant details of the applicant such as its name & address to SEBI. SEBI would in turn request RBI to provide its comments. Based on the comments received from RBI, SEBI would intimate the comments of RBI to DDP accordingly.
Where the application form is incomplete, or lacks clarity, the applicant shall be advised by the DDP to clarify or furnish the desired information within a reasonable time.
If the applicant is newly incorporated/ established seeking to register itself as a broad based fund under Category II, but does not satisfy the broad based criteria at the time of making application, the DDP may consider grant of conditional registration, with validity period of 180 days to such applicant if: 2.5.1 The applicant is an India dedicated fund or undertakes to make investment of atleast 5% corpus of the fund in India; 2.5.2 The applicant undertakes to comply with the broad based criteria before the validity of its conditional registration i.e. within 180 days; 2.5.3 In order to assess the compliance with the broad based criteria, the FPI shall provide details of investors to the DDP. The DDP may, after, appropriate due-diligence, issue acknowledgement regarding fulfilment of broad based criteria, if it is satisfied. 2.5.4 In case the DDP issues acknowledgement regarding fulfilment of broad based criteria, the conditional registration shall be treated as registration, henceforth. 2.5.5 If the FPI fails to satisfy the DDP that it has attained broad based status within 180 days, it shall be reclassified as category III. 2.5.6 If an existing broad based fund registered as Category II FPI, ceases to remain broad based on account of redemption etc., the procedure specified at clause 2.5.1 to clause 2.5.5 shall be followed.
Where an FPI desires to surrender its certificate of registration, it may make an application to the DDP. The DDP shall accept the surrender of registration after ensuring the following: 3.1.1 There are no dues by the applicant outstanding to SEBI. 3.1.2 The holdings of the concerned applicant in security account and bank account is nil. 3.1.3 SEBI has given its No Objection Certificate (NOC).
Where multiple FPIs belong to the same investor group, the investment limits of all such FPIs shall be clubbed at the investment limit as applicable to a single FPI. This shall be the responsibility of the depositories.
For the purpose of ascertaining investor group, the concerned DDPs shall consider all such entities having direct or indirect common shareholding/ beneficial ownership/ beneficial interest of more than 50%, as belonging to same investor group. The DDP shall report the details of investor group(s) to the depositories.
Information regarding investor group(s) may be obtained by the DDPs from the respective applicants in the format as prescribed in Form A of the Regulations.
Where different FPIs belonging to the same investor group are serviced by different custodians, the custodians shall report the holdings to both the depositories. The depositories shall club the investment limits and ensure that combined holdings of all these FPIs does not exceed 10% of the issued capital of the investee company at any time.
The DDP shall take necessary declarations & undertakings from the FPI.
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Source: SecMarx — Operational Guidelines for Designated Depository Participants. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.