The Securities and Exchange Board of India (SEBI) has issued an advisory regarding communications from registered intermediaries and regulated entities seeking clarifications on the implementation of operational measures and policy interpretations. SEBI departments often receive various forms of communication, sometimes in the form of summaries of discussions or minutes of meetings with SEBI officials, or understandings of specific issues related to the securities markets. However, it is important to note that such communications should not be construed as official approval, clarification, or consideration from SEBI, unless specifically communicated by SEBI in writing.
In light of this, SEBI advises all registered intermediaries and regulated entities to implement measures requiring SEBI’s approval or clarification only upon receiving explicit written approval or written communication from SEBI. Additionally, entities are encouraged to refer to the Securities and Exchange Board of India (Informal Guidance) Scheme 2003, or any modifications thereof, for seeking interpretive or no-action letters from SEBI if needed.
SEBI Modifies Procedure for Reclassification of FPI Investment to FDI
The Securities and Exchange Board of India (SEBI) has issued a new circular that modifies the procedure for reclassifying investments made by Foreign Portfolio Investors (FPIs) into Foreign Direct Investment (FDI). This circular, which comes into immediate effect, is based on Regulations 20(7) and 22(3) of the SEBI (Foreign Portfolio Investors) Regulations, 2019. Here are the detailed highlights of the circular:
Divestment Requirement
According to the regulations, if an FPI and its investor group hold investments in a company that exceed a prescribed threshold (typically 10% of the total paid-up equity capital of the company on a fully diluted basis), they must divest the excess holdings within five trading days. Failure to divest within this timeframe will result in the entire investment being reclassified as FDI.
Modified Procedure for Reclassification
- Investment Threshold: If the FPI (along with its investor group) reaches or exceeds the 10% threshold of the total paid-up equity capital of a company, and the FPI intends to reclassify its holdings as FDI, it must follow the existing Foreign Exchange Management Act (FEMA) Rules and relevant circulars.
- Notification and Purchase Freeze: Upon the FPI’s intent to reclassify, the respective Custodian must report this to SEBI. The Custodian is also required to freeze any further purchase transactions by the FPI in the equity instruments of the Indian company until the reclassification process is complete.
- Transfer of Equity Instruments: The FPI must submit a request to transfer its equity instruments from its FPI demat account to its demat account maintained for holding FDI investments. The Custodian will process this request only if the reporting for reclassification, as prescribed by the Reserve Bank of India (RBI), is complete in all respects.
Regulatory Authority
This circular is issued under the powers conferred by Section 11(1) of the SEBI Act, 1992, and in accordance with Regulations 20(7), 22(3), and 44 of the SEBI (Foreign Portfolio Investors) Regulations, 2019. The primary goal is to protect the interests of investors, promote the development of the securities market, and ensure regulatory compliance.
This new procedure aims to streamline the reclassification process, ensuring transparency and adherence to regulatory standards, thereby maintaining market integrity and investor confidence.
The Securities and Exchange Board of India (SEBI) has issued a new circular that modifies the procedure for reclassifying investments made by Foreign Portfolio Investors (FPIs) into Foreign Direct Investment (FDI). This circular, which comes into immediate effect, is based on Regulations 20(7) and 22(3) of the SEBI (Foreign Portfolio Investors) Regulations, 2019. Here are the detailed highlights of the circular:
Divestment Requirement
According to the regulations, if an FPI and its investor group hold investments in a company that exceed a prescribed threshold (typically 10% of the total paid-up equity capital of the company on a fully diluted basis), they must divest the excess holdings within five trading days. Failure to divest within this timeframe will result in the entire investment being reclassified as FDI.
Modified Procedure for Reclassification
- Investment Threshold: If the FPI (along with its investor group) reaches or exceeds the 10% threshold of the total paid-up equity capital of a company, and the FPI intends to reclassify its holdings as FDI, it must follow the existing Foreign Exchange Management Act (FEMA) Rules and relevant circulars.
- Notification and Purchase Freeze: Upon the FPI’s intent to reclassify, the respective Custodian must report this to SEBI. The Custodian is also required to freeze any further purchase transactions by the FPI in the equity instruments of the Indian company until the reclassification process is complete.
- Transfer of Equity Instruments: The FPI must submit a request to transfer its equity instruments from its FPI demat account to its demat account maintained for holding FDI investments. The Custodian will process this request only if the reporting for reclassification, as prescribed by the Reserve Bank of India (RBI), is complete in all respects.
Regulatory Authority
This circular is issued under the powers conferred by Section 11(1) of the SEBI Act, 1992, and in accordance with Regulations 20(7), 22(3), and 44 of the SEBI (Foreign Portfolio Investors) Regulations, 2019. The primary goal is to protect the interests of investors, promote the development of the securities market, and ensure regulatory compliance.
This new procedure aims to streamline the reclassification process, ensuring transparency and adherence to regulatory standards, thereby maintaining market integrity and investor confidence.
SEBI Issues Updated Master Circular on Capital and Disclosure Requirements
The Securities and Exchange Board of India (SEBI) has updated its Master Circular for compliance with the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (ICDR Regulations). This updated Master Circular, effective from September 30, 2024, consolidates all relevant circulars issued up to that date, superseding the previous Master Circular dated June 21, 2023. The new circular provides a detailed chapter-wise framework for compliance with various obligations under the ICDR Regulations, with footnotes for easy reference.
The key highlights include the rescission of specific previous circulars, ensuring that any actions taken under these rescinded circulars before their rescission remain valid and are deemed to have been conducted under the corresponding provisions of the new Master Circular. Recognized stock exchanges and depositories are instructed to notify stakeholders, implement necessary systems for compliance, and update their bylaws and rules accordingly. All listed and proposed-to-be-listed entities must adhere to the conditions of this updated Master Circular. This initiative aims to streamline compliance, enhance transparency, and ensure that stakeholders have a single, comprehensive reference for all related requirements.
This Master Circular is issued under the powers conferred by Section 11(1) of the SEBI Act, 1992, reinforcing SEBI’s commitment to protecting investor interests and regulating the securities market effectively.
Disclaimer: The information published in the above newsletter is collected from various sources in electronic medium and analyzed by the firm. The reader is advised to consult the attorney qualified in their jurisdiction, before acting on any information contained in this newsletter. India Juris excepts no liability what so ever in this regard.
