To bring greater transparency to Indian capital markets, Sebi on Thursday mandated additional disclosures from certain FPIs that have concentrated holding in a single company or a group firm.
Such Foreign Portfolio Investors (FPIs) will be required to identify all entities with any ownership, economic interest and control rights.
The financial markets regulator has also specified the timeline for making such disclosures.
The new framework will come into effect from November 1, the Securities and Exchange Board of India (Sebi) said in a circular.
Market experts believe that the move has its genesis in the Adani issue where Sebi could not identify the beneficial owners of some foreign portfolio investments in Adani stocks since the existing regulations are lax in identifying the true owners of many investments.
Sebi said "granular details of all entities holding any ownership, economic interest, or exercising control in the FPI, on a full look-through basis, up to the level of all natural persons, without any threshold, shall be provided by FPIs that fulfill certain criteria" to designated depository participants.
FPIs holding more than 50 per cent of their equity Asset Under Management (AUM) in a single corporate group will be required to comply with the requirements for additional disclosures.
Additionally, FPIs with an overall holding in Indian equity markets of over Rs 25,000 crore will be required to comply with additional granular disclosure requirements.
However, FPIs having a broad-based, pooled structure with a widespread investor base, ownership interest by the government, or government-related investors may not pose significant systemic risk.
Accordingly, government and related entities such as central banks, sovereign wealth funds and public retail funds registered as FPIs have been exempted from making such granular disclosures.
With regard to additional disclosures, the regulator said FPIs holding more than 50 per cent of their Indian equity AUM in a single Indian corporate group will have 10 trading days within which they can bring down their exposure.
Post this, such FPIs will have to make additional disclosures Additionally, such FPIs will not make fresh equity purchases of any company belonging to the corporate group during the next 30 calendar days from the date of exceeding the threshold.
Similarly, the FPIs holding more than Rs 25,000 crore of equity AUM in the Indian markets will have 90 calendar days to bring down their holding, after which they will have to make the additional disclosures.
Accounts of all such FPIs will be blocked for further equity purchases until the holding is brought below Rs 25,000 crore.
Going by the circular, FPIs whose investments continue to exceed the prescribed threshold after the expiry of these timelines will be given 30 trading days to make disclosures, after which their registration will become invalid.
The FPI will then liquidate its securities and exit the Indian securities market by surrendering its registration within 180 calendar days from the day the certificate becomes invalid, according to the circular.
During these 180 days, the investee companies will restrict the FPIs' voting rights to its actual shareholding or its shareholding corresponding to 50 per cent of its equity AUM on the date its FPI registration is rendered invalid, whichever is lower.
For monitoring compliance with the exposure limit in a single corporate group, a repository containing names of companies forming a part of each Indian corporate group will be publicly disseminated on the websites of stock exchanges and depositories.
The regulator came out with a consultation paper in this regard in May and the Sebi board approved the proposal in June.