Sebi eases norms for NRIs, OCIs in GIFT City FPIs: A boost for offshore investors

The Securities and Exchange Board of India (Sebi) has approved a proposal to allow up to 100% participation by Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs) in a foreign portfolio investor based out of the International Financial Services Centre (GIFT City).

The Sebi board in its meeting on Tuesday, April 30, approved a regulatory framework for providing flexibility for increased contribution by NRIs, OCIs and RI Individuals, in the corpus of GIFT City-based Foreign Portfolio Investors (FPIs).

The NRI and OCI investors cannot own more than 50% in an FPI, as per the existing norms.

The market regulator, however, proposed certain conditions to provide flexibility for such increased participation by NRIs and OCIs to manage regulatory risk.

Sebi proposed that FPIs would be required to submit copies of PAN cards of all their NRI/OCI/RI individual constituents, along with their economic interest in the FPI for availing 100% contribution limits.

“If a constituent does not have a PAN, the FPI shall submit a suitable declaration along with copies of prescribed identity documents such as Indian passport, OCI Card, Aadhaar etc,” Sebi said in a statement.

Sebi streamlines prudential norms for passive schemes

The market regulator also approved an amendment to SEBI (Mutual Funds) Regulations, 1996 to allow equity passive schemes on indices to take exposure up to the weightage of the constituents in the underlying index.

The decision to streamline norms has been taken to create a level playing field for all asset management companies, Sebi stated.

Mutual fund schemes are not allowed to invest more than 25% of the net asset value in group companies of the sponsor.

“This restricts the passive funds from effectively replicating the underlying index, in cases where group companies of sponsor comprise of more than 25% in the index,” Sebi said.

This exposure would, however, be subject to an overall cap of 35% investment in the group companies of sponsor.

Institutional framework proposed to check front-running

The Sebi board also proposed that AMCs would have an institutional mechanism for deterrence of potential market abuse including front-running.

The market regulator took this decision against the backdrop of recent front-running instances observed by the regulator.

Asset Management Companies (AMCs) will be needed to put in place a structured institutional mechanism for identification and deterrence of potential market abuse including front-running and fraudulent transactions in securities, according to Sebi.

Enhanced surveillance systems, internal control procedures and escalation processes to identify, monitor and address specific types of misconduct would be part of the mechanism.