Sebi Eases Timelines for FPIs to Report and Disclose Material Changes

The Securities and Exchange Board of India (Sebi) has provided significant relief to Foreign Portfolio Investors (FPIs) by relaxing the timelines for reporting and disclosing material changes. This move is set to streamline the process for FPIs, ensuring better compliance and reducing the regulatory burden.

Previously, FPIs were required to disclose many material changes as soon as possible, which often led to a rush and potential oversights. However, under the new regulations, material changes are now categorized into two types, each with distinct reporting timelines.

Type 1 Changes: Urgency in Reporting

Type 1 material changes, which include critical events such as restructuring, changes in jurisdiction, mergers or acquisitions, and any impact on exemptions granted to the FPI, must be disclosed within seven working days of the occurrence. Supporting documents for these changes must be provided within 30 days. This category includes 14 specific points, with certain changes necessitating fresh registration for the FPIs. Legal experts have noted that the seven-day period offers significant relief, allowing FPIs more time to accurately report substantial changes.

Type 2 Changes: Extended Reporting Period

All other changes fall under the Type 2 category, which are less urgent and need to be reported within 30 days, along with any supporting documents. This distinction between Type 1 and Type 2 changes aims to prioritize more critical updates while still maintaining comprehensive reporting standards for less urgent matters.

New Framework for Expired Registrations

In addition to easing the disclosure timelines, Sebi has also introduced a framework for FPIs whose registrations have lapsed. As of June 2023, 55 such FPIs held approximately Rs 3,300 crore worth of securities in their demat accounts. The new regulations provide these FPIs a window of 360 days to liquidate their holdings in the domestic market and wind up their open positions in derivatives. If an FPI fails to comply within this timeframe, the securities will be deemed to have been written off as per guidelines specified by Sebi.

Provisions for Re-registration

Sebi has also included a provision for these FPIs to re-register by paying a late fee, thereby offering a pathway for these investors to regain their status without losing their holdings. This measure ensures that FPIs have sufficient time to manage their portfolios and comply with regulatory requirements without facing undue penalties.

Role of Designated Depository Participants (DDPs)

The role of Designated Depository Participants (DDPs) has been emphasized in the new regulations. DDPs are required to examine all material changes reported by FPIs and reassess their eligibility. In cases of delayed intimation by FPIs, DDPs must inform Sebi within two working days, along with reasons for the delay, ensuring that the regulatory body can take appropriate action if necessary.

Conclusion

Sebi’s new regulations mark a significant shift towards a more flexible and FPI-friendly environment. By categorizing material changes and extending reporting timelines, the regulatory burden on FPIs is eased, allowing for more accurate and timely disclosures. The framework for expired registrations further underscores Sebi’s commitment to maintaining market stability while providing investors with sufficient time to comply with regulations. This balanced approach is likely to foster a more efficient and transparent market for FPIs operating in India.