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SEBI changes rules to increase NRI role in Investment
Tuesday, August 12, 2008

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.


 

 

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