SEBI changes rules to increase NRI role in Investment

The Securities & Exchange Board of India (Sebi) made amendments
to the regulations regarding foreign
institutional investors (FIIs). In a 16-page notification, Sebi
has made amendments to clause 13 of the Sebi (Foreign Institutional
Investors) Regulations, 1995. The amended regulations will be called
the Sebi (FIIs) (Amendment) Regulations, 2008.

It has made an effort to give non-resident Indians (NRIs) a broader
role in developing the domestic financial market. The regulator also
added sovereign wealth funds (SWFs) in the category of FIIs and broadened
its definition.

With these amendments, applicants for FII registration would now include
SWFs, apart from international or multilateral organizations, foreign
governmental agencies and overseas central banks. The amendments also
allow unregulated university funds, endowments and charitable trusts
to become FIIs. Giving NRI fund managers a major boost, the regulator
said an asset management company (AMC), investment manager or advisor
or an institutional portfolio manager set up and/or owned NRIs would
be eligible to be registered as an FII subject to the condition that
they would not invest their proprietary funds. In others words, such
entities can act only as asset managers.

"The foreign institutional investor shall be responsible and liable
for all acts of commission and omission of all its sub-accounts and
other deeds and things done by such sub-accounts in their capacity as
sub-accounts under these regulations", the notification said. The
notification has also incorporated the policy measures adopted on the
Offshore Derivative Instruments (Participatory Notes) and all the changes
made for the registration of FIIs last year. The market regulator had
earlier proposed a slew of changes to the norms governing ODIs and participatory
notes and had put curbs on the role of FIIs in issuing PNs.

Specifying further the definition of a sub-account, Sebi said a sub-account
means any person resident outside India, on whose behalf investments
are proposed to be made in India by an FII and who is registered as
a sub-account under these regulations. Defining who constitutes a "foreign
individual", the regulations say such individuals will have to
fulfill the conditions of having a net worth of not less than $50 million,
hold the passport of a foreign country for at least five years preceding
the date of application. It also says the individual should hold a certificate
of good standing from a bank and should be a client of the FII or any
other entity which belongs to the same group as the FII for at least
three years preceding the date of application.

These regulations will come into force on the date of their publication
in the Official Gazette and is expected to provide a fillip to such
NRI fund management activities, as about 30 proposals involving NRI
fund managers are believed to be awaiting the regulator’s clearance.

Photo: SEBI Bhavan by Jimmy vikas, licensed under CC BY-SA 3.0, via Wikimedia Commons.