The Securities and Exchange Board of India (“SEBI”), vide notification dated June 3, 2024, issued the SEBI (Foreign Portfolio Investors) (Amendment) Regulations, 2024 to amend the SEBI (Foreign Portfolio Investors) Regulations, 2019 (“FPI Regulations”). The amendments aim to provide greater flexibility to Foreign Portfolio Investors (“FPIs”) in dealing with their securities post expiry of their registration.

Corresponding changes were also made to the Master Circular for FPIs, Designated Depository Participants and Eligible Foreign Investors (“Master Circular”) dated May 30, 2024 which, inter alia, detailed the framework and timelines for registration of FPIs by a circular dated June 5, 2024.

By way of this amendment, SEBI has made the following changes to the FPI Regulations: 

One-time provision for dealing with existing securities held by FPIs having an invalid registration

Regulation 7(5) of the FPI Regulations requires FPIs holding securities or derivatives in India to have a valid registration. Under the earlier framework, FPIs having an invalid certificate of registration and holding securities or derivatives in India were allowed to either sell their existing securities or wind up their open position in derivatives within a period of 1 (one) year from the date of publication of the FPI Regulations, i.e., September 23, 2019.

Pursuant to the amendment, a proviso to Regulation 7(5) was inserted which provides that FPIs having an invalid certificate of registration and holding securities or derivatives in India as on June 3, 2024 are allowed to either sell their existing securities or wind up their open position in derivatives within a period of 360 (three hundred sixty) days from June 3, 2024.

Additionally, the Master Circular provides that the period of 360 (three hundred sixty) days for sale of securities will be divided into two blocks of 180 days each. The sale of securities during the first block of 180 days is not subject to any financial disincentive. However, sale during the latter 180 days is subject to a financial disincentive of 5% of sale proceeds, which shall be deducted by the custodian of the FPI and remitted to the Investor Protection and Education Fund created by SEBI.

The Master Circular further provides that if securities continue to remain unsold upon the expiry of the 360 (three hundred sixty) day-period, it shall be deemed to have been compulsorily written off and all beneficial interests in the same would no longer accrue to the FPI.

Forward going provision for dealing with re-activation of registration and disposal of securities, post expiry of re-activation period

Regulation 7(3) of the FPI Regulations requires FPIs to pay a registration fee in blocks of 3 years, prior to the expiry of their existing registration, to renew the same. Under the erstwhile regime, there was no provision for payment of registration fee post expiry and consequently, FPIs had to compulsorily surrender their existing registration and re-apply for a fresh registration.

The amendment added a new Regulation 7(6) which permits FPIs to re-activate their registration upon payment of registration fee along with an additional late fee, provided this is undertaken within 30 (thirty) days from the date of expiry of the previous block for payment of late fee. Within this 30 (thirty) day period, i.e., until re-activation of registration, FPIs are not permitted to purchase fresh securities but are allowed to dispose of existing securities.

If the FPI does not pay the registration fee and the late fee, as applicable, within the stipulated timelines and continues to hold securities or derivatives in India, they will be permitted to dispose of their holdings within 360 (three hundred sixty) days (divided into two blocks of 180 days each) from the expiry of the 30 (thirty) days period.

The sale of securities during the first block of 180 days is not subject to any financial disincentive. However, sale during the latter 180 days is subject to a financial disincentive of 5% of sale proceeds, which shall be deducted by the custodian of the FPI and remitted to the Investor Protection and Education Fund created by SEBI. Additionally, the Master Circular provides that sale of suspended, unlisted/delisted securities shall be permitted through off-market transactions, subject to pricing guidelines.

The Master Circular further provides that if securities continue to remain unsold upon the expiry of the additional 180 (one hundred eighty) day-period, it shall be deemed to have been compulsorily written off and all beneficial interests in the same would no longer accrue to the FPI.

Regulation 7(7) has also been inserted which stipulates that the additional time-periods so granted under Regulation 7(5) and 7(6) of the amendments are without prejudice to any actions that may be initiated by SEBI. The purpose of this provision is not clear, but it suggests that SEBI is retaining the power to impose penalties on FPIs for such delays.

This update has been contributed by Armaan Patkar (Partner) and Anoushka Goel (Associate).

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