The stock market regulator’s stricter ownership disclosure norms for foreign portfolio investors (FPIs) kicked in on Tuesday. Custodians owned by foreign banks and a section of the foreign investors have been asking the Securities and Exchange Board of India to dilute the norms but Sebi has been firm on implementing them. Here, ET’s Reena Zachariah explains the new rule and its likely impact…

What is the new rule?

According to the new regulation, FPIs holding more than 50% of their Indian equity assets under management in a single Indian corporate group and those having more than Rs 25,000 crore of equity assets under management in Indian stocks are required to provide granular details of all entities with any ownership, economic interest, or control rights in the fund or the entity to Sebi.

Why has Sebi brought this rule?
The tightened ultimate beneficial ownership norms were introducedin August 2023 in the wake of allegations of opacity in the ownership structure of some overseas entities that were shareholders in Adani Group companies. The regulator said it observed that certain FPIs held concentrated portions of their equity portfolio in a single corporate group, without naming any specific company or group. It said such concentrated investments raise the concern and possibility that promoters of such corporate groups and investors act in concert and use the FPI route for circumventing regulatory requirements of disclosures under the takeover code or minimum public shareholding norms in a listed company. Sebi also wants to know if the beneficial owner of an investment into India is situated in or is a citizen of any of the countries that share land border with India, who can only come in through the government route.

Who all are exempted from additional disclosure?
Sebi has provided exemption from these norms to FPIs that are sovereign wealth funds, listed companies on certain global exchanges, public retail funds, and other regulated pooled investment vehicles with diversified global holdings. The regulator is also considering additional exemptions to some other select FPIs.

What happens if an FPI is unable to comply with the rules?
While Sebi has allowed a grace period of up to 30 days after January 30 for funds to adhere to the rules, these entities will not be able to make fresh purchases of Indian stocks thereafter and can only trade on domestic stock exchanges to cut their holdings. Such FPIs must liquidate their holdings and surrender their Sebi registration within 180 calendar days.

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