Foreign Portfolio Investors Urge Sebi to Revise Disclosure Rules

The Securities and Exchange Board of India (Sebi) has received a proposal from several foreign portfolio investors (FPIs) to revise the disclosure norms governing their activities in the Indian capital market. The investors have requested an extension of the licence period from three to five years, the introduction of a closing auction session (CAS) to determine more representative closing prices, and an exemption from granular disclosures for large private funds.

The FPIs have argued that the current three-year licence period is too short, requiring them to pay a fee and share necessary details every three years to renew their registration with Sebi and trade on Indian stock exchanges. They have also suggested the introduction of CAS, which exists in several leading markets, to reduce tracking errors for passive funds. Additionally, they have requested an exemption from additional disclosures for large private funds, citing their wide investor base and regulatory supervision.

According to Rajesh Gandhi, partner at Deloitte India, "An exemption from providing granular details could be considered for non-retail funds which have a wide investor base similar to the erstwhile broad-based fund concept." Richie Sancheti, founder of the law firm Richie Sancheti Associates, shared a similar view, stating that, "Sebi's own SOP acknowledges this by exempting certain regulated pooled vehicles. Extending this logic, a well-regulated, broadly held private fund could justifiably be given leeway."

Key Takeaways:

• FPIs have requested an extension of the licence period from three to five years to reduce regulatory bandwidth and ease of doing business.
• The introduction of CAS is expected to reduce tracking errors for passive funds by determining more representative closing prices.
• Large private funds have been exempted from additional disclosures, citing their wide investor base and regulatory supervision.
• Sebi's existing SOP acknowledges exemptions for regulated pooled vehicles, and extending this logic would justify similar treatment for well-regulated, broadly held private funds.
• The FPIs have requested flexibility on the concentration criterion, allowing exemption from additional disclosure norms for offshore funds deemed to be regulated through their registered advisors/managers.

Statistics:

• The proposed licence period extension from three to five years would reduce regulatory bandwidth and ease of doing business.
• The FPIs have requested the introduction of CAS, which exists in several leading markets, to reduce tracking errors for passive funds.
• The exemption from additional disclosures for large private funds would apply to 50% of their Indian equity assets under management (AUM) in a single Indian corporate group.
• The threshold triggering the rule to reveal the identities of the last natural persons behind entities that invest in the funds is Rs 50,000 crore of equity AUM in the Indian markets.
• The Sebi disclosure norms require FPIs to disclose the last natural persons of all investors in the funds if they hold more than 50% of their Indian equity AUM in a single Indian corporate group.

Sources:

• Deloitte India
• Richie Sancheti Associates
• IC Universal Legal
• Securities and Exchange Board of India (Sebi)
• Various foreign portfolio investors (FPIs)