SEBI Board Approves FPI Access, PMS Revamp And New Settlement Rules

The Securities and Exchange Board of India (SEBI) has approved a broad set of regulatory changes covering foreign portfolio investors (FPIs), portfolio management services (PMS), settlement proceedings and accredited investors.

The measures approved at the board meeting on 24 September also cover advertising by asset management companies (AMCs), fundraising by Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs), and the regulatory framework for vault managers.

What Has SEBI Changed For Foreign Portfolio Investors?

FPIs will now be allowed to participate in physically settled non-agricultural commodity derivatives, subject to conditions. For these contracts, foreign investors will have to square off their positions before the tender or staggered delivery period begins, which is three days before expiry.

If an FPI fails to close its position, the open position can be transferred automatically to the proprietary account of a designated trading member or trading-cum-clearing member.

FPIs will also be allowed to trade in non-agricultural index derivatives because these contracts are cash settled, irrespective of the nature of their underlying commodities.

What Is Changing For PMS Companies?

SEBI has approved a revamp of the portfolio management services framework. Portfolio managers will be able to offer mutual-fund-only PMS schemes, allowing professionally managed portfolios of mutual fund investments through a separate MF-PMS registration. This includes investments in direct plans of mutual funds, exchange-traded funds and specialised investment funds.

Discretionary PMS companies will also be able to invest in investment-grade unlisted debt securities.

How Will SEBI’s Settlement Framework Change?

SEBI has also approved changes aimed at reducing the gap between settlement amounts and penalties. The regulator had found that where settlement applications were rejected or withdrawn and the matter later resulted in a penalty, settlement amounts averaged around eight times the final penalty.

Under the new framework, SEBI expects this gap to reduce to about four times. Wrongful gains will continue to be disgorged but will no longer form part of the base amount used for calculating settlement amounts.

Cases involving settlement amounts of up to ₹10 lakh will also get a fast-track route without referral to the High Powered Advisory Committee. Entities will additionally be able to seek settlement before formal proceedings begin through settlement notices.

What Other Capital-Market Changes Did SEBI Approve?

Under a new common advertising code, AMCs will be allowed to publish celebrity endorsements for their fund houses on a pre-approved basis. SEBI has also allowed REITs and InvITs to raise funds from foreign investors through depository receipts.

The board approved an expansion of the vault-manager framework covering gold and silver underlying physically backed investment products, including gold and silver ETFs and physically settled derivatives.

It has also approved a framework allowing AIF managers, AMCs offering specialised investment funds and PMS providers to accredit investors, while the existing accreditation-agency route will continue.

Individuals can qualify based on annual income of at least ₹2 crore or net worth of ₹7.5 crore, with at least half in financial assets. Companies and trusts require a net worth of at least ₹50 crore.

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