DDP

While the circular covers a plethora of topics, one of the key issues is the registration of FPI entities and the role of DDPs in the same

The stock market watchdog, the Securities and Exchange Board of India (SEBI)  has been strengthening its governance reforms, earlier having tightened the noose on REITs (Real Estate Investment Trust) and InVITs (Infrastructure Investment Funds). The caution has increased even further after the National Stock Exchange episode which involved its former CEO Chitra Ramkrishna and former Group Operating Officer-cum advisor Anand Subramanian. The CEO has been accused of providing Ramakrishna with disproportionate assets.

In lieu of incidents like these, SEBI has issued a master circular clarifying the registration of Foreign Portfolio Investors (FPI), Designated Depository Participants (DDPs), and custodians, the depositories, all recognised stock exchanges and clearing corporations including those in international financial services center. While the circular covers a plethora of topics, one of the key issues is the registration of FPI entities and the role of DDPs in the same.

“FPI applicant shall submit duly filled prescribed application form–CAF and ‘Annexure to CAF’(Annexure B) supported by required documents and applicable fees for SEBI registration and the issuance of   PAN.” Says the circular. Annexure B includes information over and above individual declarations like separate registration for the purposes of hedging the ODIs with derivatives as underlying in India or if the segregated portfolio is maintained for each sub-fund or share classes/ equivalent structures of the applicant, names of such sub-funds or share classes/ equivalent structures that intend to invest in India. The in-depth verification will be carried out by DPP (Designated Depository Participants) and will be clarified under country verification, NRI status verification, etc. 

The second aspect is registration of banking and financial institutes, for which the circular says “In case an applicant/ its group entity is (i) bank or its subsidiary and has a bank branch/representative office in India or (ii) a central bank or its subsidiary, the respective DDP shall forward the application form to SEBI.” Additionally, there are also guidelines for insurance entities, pension funds, and other entities investing on behalf of other entities. For multiple investment managers, the entity can obtain multiple FPI registrations mentioning the name of the investment manager for each such registration. To continue the existing registration of FPIs, they have to pay fees to their DPPs and inform any changes if any. The application of FPI can be rejected with reason by DPP. Also, the change in the ownership of the FPI will also be in the hands of the DPP. The body does not have a free pass, they have to regularly submit their monthly activities to SEBI. FPIs are also required to provide KYC-related documents based on the category under which it is registered.