SEBI Rolls Out Framework for FPI Securities Disposal After Registration Expiry

In a significant move aimed at easing the operational challenges faced by Foreign Portfolio Investors (FPIs) in India, the Securities and Exchange Board of India (Sebi) unveiled a new framework on Wednesday. This development is poised to streamline the process for FPIs dealing with securities in their dematerialized (demat) accounts post-registration expiry. Traditionally, FPIs were mandated to maintain a valid registration to hold securities within the country, necessitating the payment of a registration fee every three years. Failure to comply resulted in the expiration of their registration, leaving their securities frozen in demat accounts.

Representative image

As of June 30, 2023, data revealed that 55 FPIs with expired registrations were holding securities valued at approximately Rs 3,300 crore. To address this issue, Sebi's latest circular introduces provisions allowing these investors to reactivate their expired registrations within a 30-day window from the expiry date. During this period, FPIs are also granted the liberty to liquidate their securities holdings. Should an FPI decide against reactivation within the stipulated timeframe, an extended period of 180 days is provided for the disposal of securities.

The revised guidelines specify the registration fees for FPIs: USD 2,500 for Category I and USD 250 for Category II FPIs. Additionally, in scenarios involving an adverse change in compliance status or failure to submit necessary documents for reclassification from Category I to II, a minimum disposal period of 180 days or until the end of the current registration block is offered.

Sebi's circular further outlines measures for cases where securities remain unsold post the initial 180-day period. An additional 180 days will be granted for liquidation, albeit with a financial disincentive of 5% of the sale proceeds. This amount will be directed to Sebi's Investor Protection and Education Fund (IPEF). Securities not sold within this extended timeframe will be considered as compulsorily written-off by the FPI.

For existing FPIs with expired registrations and unsold securities, Sebi has provided a one-time opportunity to dispose of their holdings within a total period of 360 days—comprising an initial 180 days without financial penalties followed by another 180 days with a 5% financial disincentive. Furthermore, written-off securities will be transferred to an escrow account managed by an exchange-empanelled broker tasked with selling these at market price. Proceeds from such sales will be allocated to Sebi's IPEF.

This framework represents Sebi's commitment to facilitating a more flexible and investor-friendly environment for FPIs operating in India. By allowing expired registrations to be reactivated and providing extended periods for the disposal of securities, Sebi aims to mitigate potential financial losses and ensure smoother operations for foreign investors in the Indian securities market.