Clarification on clubbing of investment limits of Foreign Portfolio Investors (FPIs)
Summary
This circular clarifies that beneficial ownership criteria under PMLA Rules apply only to KYC and not for clubbing FPI investments. It establishes that investment limits must be clubbed based on common ownership exceeding 50% or common control, with specific exemptions for regulated public retail funds. The document outlines procedures for handling breaches of these limits and references the statutory powers under Section 11(1) of the SEBI Act.
Text
Beneficial ownership criteria in Prevention of Money-laundering (Maintenance of Records) Rules, 2005 should be made applicable for the purpose of KYC only and not for clubbing of investments of FPIs.
Clubbing of investment limit for FPIs will be on the basis of common ownership of more than 50% or based on common control.
clubbing of investment limit of FPIs having common control shall not be done in case of (a) FPIs which are appropriately regulated public retail funds or (b) FPIs which are public retail funds majority owned by appropriately regulated public retail funds on look through basis or (c) FPIs which are public retail funds and investment managers (IMs) of such FPIs are appropriately regulated.
Public retail funds mean (i) mutual funds or unit trusts which are open for subscription to retail investors and do not have specific investor type requirements e.g. accredited investors etc, (ii) insurance companies where segregated portfolio with one to one correlation with a single investor is not maintained and (iii) pension funds.
Control includes the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of shareholding or management rights or shareholders agreements or voting agreements or in any other manner.
In case, two or more FPIs including foreign Governments/ their related entities are having direct or indirect common ownership of more than 50% or control, all such FPIs will be treated as forming part of an investor group and the investment limits of all such entities shall be clubbed at the investment limit as applicable to a single foreign portfolio investor.
In cases where Government of India enters into agreements or treaties with other sovereign Governments and where such agreements or treaties specifically recognize certain entities to be distinct and separate, SEBI may, during the validity of such agreements or treaties, recognize them as such, subject to conditions as may be specified by it.
The investment by foreign Government agencies shall be clubbed with the investment by the foreign Government/ its related entities for the purpose of calculation of 10% limit for FPI investments in a single company, if they form part of an investor group.
The investment by foreign Government/ its related entities from provinces/ states of countries with federal structure shall not be clubbed if the said foreign entities have different ownership and control.
FPI in breach shall have to divest its holding within five trading days from the date of settlement of the trades to bring its shareholding below 10% of the paid up capital of the company, or,
The said investments shall be treated as Foreign Direct Investment from the date of breach.
This circular is issued in exercise of powers conferred under Section 11(1) of the Securities and Exchange Board of India Act, 1992 to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.
Source: SecMarx — Clarification on clubbing of investment limits of Foreign Portfolio Investors (FPIs). Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.