SEBI Tightens Rules For Foreign Portfolio Investors Issuing ODIs In India
Under the new SEBI guidelines, FPIs must now collect ownership details of shareholders controlling the ODIs they issue. The move is aimed at enhancing transparency and regulatory oversight.
The Securities and Exchange Board of India on Tuesday tightened regulations governing offshore derivative instruments and foreign portfolio investors. These changes, effective immediately for most FPIs and ODIs, are aimed at tightening the framework surrounding offshore derivative transactions in India’s capital markets.
Under the updated rules, FPIs are prohibited from issuing ODIs with derivatives as the underlying instruments, according to the SEBI's latest circular. This measure restricts the use of complex financial structures that may obscure the real nature of foreign investments, it added.
The market watchdog added that FPIs are not allowed to hedge their ODIs with derivative positions on Indian stock exchanges—a move aimed to prevent the use of Indian markets to offset or speculate on the underlying ODIs, thereby reducing the potential for market manipulation.
Additionally, SEBI has imposed new reporting requirements on FPIs. The overseas investors must now collect and maintain ownership information about shareholders who control the ODIs they issue, the circular said. This data will increase transparency and assist in tracking foreign investments more effectively.
The requirement is designed to prevent indirect control of listed Indian companies and reduce the risk of misuse of ODIs.
The new guidelines also impose limits on the total amount of ODIs that can be issued. FPIs are now restricted from issuing ODIs to investors holding more than 5% of the underlying shares of a company, according to the circular. Additionally, the total issuance of ODIs cannot exceed 50% of a company’s total issued capital. These limits are intended to prevent excessive concentration of control by a small number of foreign investors.
The SEBI has also mandated that FPIs issue ODIs only through a separate, dedicated FPI registration. This requirement ensures that the issuance process is distinct from other types of foreign investments, allowing for clearer regulatory oversight.
