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The Securities and Exchange Board of India (Sebi) has proposed a significant increase in the threshold for foreign portfolio investors (FPIs) to provide granular disclosure of their investor holdings. Currently, FPIs managing equity assets under management (AUM) exceeding Rs 25,000 crore are required to disclose detailed information about all their investors. Sebi's proposal, outlined in a consultation paper, seeks to double this threshold to Rs 50,000 crore. This move is primarily aimed at strengthening regulatory oversight and mitigating the risk of round-tripping, a practice where funds are routed through complex structures to circumvent regulations and potentially manipulate market behavior. The justification for the increase hinges on the substantial growth in daily market turnover, which has seen a 122% surge, reaching Rs 1,18,757 crore in FY 2024-25 (up to December 2024) compared to Rs 53,434 crore in FY 2022-23. The regulator argues that the current threshold is no longer sufficient to effectively monitor large FPIs and prevent potential market disruptions.
The rationale behind the stringent disclosure requirements is rooted in the need to prevent the circumvention of Press Note 3 stipulations. Press Note 3 addresses concerns around foreign investment and aims to ensure transparency and prevent undue influence in the Indian securities market. By requiring detailed disclosure from large FPIs, Sebi seeks to enhance its ability to monitor activities and identify any attempts to circumvent these regulations. The focus is on preventing FPIs from using their substantial holdings to manipulate market dynamics or engage in practices detrimental to the overall health and stability of the Indian stock market. The increased threshold, therefore, is not simply an administrative adjustment, but a strategic move to maintain market integrity and investor confidence.
However, Sebi acknowledges that not all FPIs require the same level of scrutiny. Certain FPIs, particularly those with broad-based, pooled structures, widespread investor bases, or government/government-related investor ownership, have been exempted from these additional disclosure requirements, subject to specific conditions. These exemptions are intended to avoid placing an undue burden on FPIs that pose minimal risk of regulatory circumvention. The consultation paper explicitly invites public comments on the proposed changes, providing stakeholders an opportunity to voice their opinions and contribute to the refinement of the regulatory framework. This period of public consultation is a crucial step in the rulemaking process, ensuring that the final regulations are well-considered and strike an appropriate balance between regulatory oversight and minimizing undue burden on compliant FPIs. The deadline for submitting comments is set for January 31st, 2025.
The proposed changes highlight the ongoing efforts by Sebi to balance the need to attract foreign investment while maintaining a robust regulatory environment. The increase in the disclosure threshold reflects a pragmatic approach, adapting regulations to the evolving dynamics of the Indian capital market. By increasing the threshold, Sebi is attempting to focus its resources on the larger FPIs that potentially present a greater risk of market manipulation. This targeted approach, coupled with the exemptions for certain types of FPIs, aims to minimize administrative burdens while maintaining a strong regulatory framework aimed at protecting the integrity of the Indian financial markets. The outcome of the public consultation will be instrumental in shaping the final regulations, ensuring that the rule changes are effectively implemented and achieve their intended objectives of enhancing transparency and preventing market abuse.
Source: FPIs: Sebi plans hiking threshold to Rs 50,000 cr for making granular disclosures