To facilitate ease of doing business for Foreign Portfolio Investors, markets regulator Sebi has proposed allowing such investors to dispose of securities lying in their demat accounts after the expiry of their registration.
Current Regulatory Constraints for FPIs
Under the current rule, Foreign Portfolio Investors (FPIs) are required to have a valid registration as long as they hold securities in India. In order to keep their registration valid, they need to pay the registration fee for every block of three years. Non-payment of fees lead to FPI's registration expiring.
Further, current rules do not provide for liquidation of securities by FPI after the expiry of their registration and the securities held by such FPI remain frozen in their demat accounts.
Current Scenario of Expired Registrations
As on June 30, 2023, there were 55 FPIs, whose registration has expired, holding securities valued at about Rs 3,300 crore in their demat accounts, Sebi noted.
Sebi's Proposal for Disposal of Securities
In its consultation paper issued on Wednesday, the markets regulator has proposed to permit FPIs to regularise their account or dispose of securities lying in their demat accounts, after the expiry of their registration. Such an opportunity to regularise the registration has been proposed to be time-bound -- within 30 days-- and subject to the imposition of certain financial disincentives. This includes the imposition of a late fee of 2 per cent of the registration fee per day.
Financial Disincentives for Late Regularization
The registration fee for FPIs is currently USD 2,500 for Category I and USD 250 for Category II. Therefore, late fees on a per-day basis in this context will work out to USD 50 for Category I and USD 5 for Category II FPIs.
Limited Window for Liquidation
Further, FPIs with expired registration are currently not permitted to liquidate their holding, Sebi proposed allowing such FPIs to liquidate their holdings within 180 days after the expiry of the 30-day timeline.
Measures for Securities Blocked in FPI Accounts
Additionally, Sebi has proposed measures for dealing with securities blocked in the accounts of FPIs, after the expiry of prescribed timelines for liquidation and guidelines for dealing with securities written-off by the FPIs.
On dealing with existing cases of non-compliant FPIs with blocked securities in their accounts, Sebi has recommended a one-time opportunity to be given to such foreign investors for the disposal of securities.
Additional 180 Days for Liquidation
FPIs, whose registration has expired before issuance of this framework, should be offered an opportunity to sell the securities lying in their demat accounts, within 180 days from the date of issuance of this framework. This opportunity to dispose of the securities should be without any financial disincentive.
The regulator has proposed to provide an additional 180 days for liquidation to FPIs, whereby they can use one of the two alternative approaches -- either by the sale of securities by the FPI itself or the sale of securities through exchange empanelled broker -- for disposal of securities.
Further, it has been proposed that after the expiry of the additional 180 days period, any securities remaining unsold should be considered to have been compulsorily written-off and the FPI should lose any beneficial interest in such securities, including voting rights, and benefits arising from corporate action.
The Securities and Exchange Board of India (Sebi) has sought comments from the public till February 28 on these proposals.
