The Securities & Exchange Board of India (SEBI) on February 27, 2024, proposed two exemptions to additional disclosure framework for Foreign Portfolio Institutions (FPIs) specified under the August 24, 2023, circular (August Circular).

SEBI’s August circular mandated disclosure of granular details of all entities holding any ownership, economic interest, or control in an FPI, on a full look through basis, without any threshold, by FPIs that fulfilled certain criteria including holding more than 50 percent of their Indian Equity Assets Under Management (AUM) in a single Indian corporate group and individually, or along with their investor group hold more than Rs 25,000 crore of equity AUM in the Indian markets.

In the consultation paper, SEBI seeks to exempt Category I University Funds and University related Endowments FPI that meet certain objective criteria from the requirement of enhanced disclosures. The second proposal is to exempt enhanced reporting requirements for some funds with concentrated holdings in entities with no identified promoter group, where there is no risk of breach of Minimum Public Shareholding (MPS).

I. Exemption from Making the Additional Disclosures to University Funds and Universities Related Endowments.

The consultation paper proposes exemption of university funds and university related endowments, registered or eligible to be registered as Category I FPI, from the disclosure requirements prescribed under the August Circular, subject to the following additional conditions:
1. The university is listed in the Top 200 ranking as per the latest available QS World University Rankings issued by QS Quacquarelli Symonds Limited
2. Its India equity AUM is less than 25% of its Global AUM
3. Its global AUM is more than INR 10,000 crore.
4. It has filed appropriate return/filing to the respective tax authorities in their home jurisdiction to evidence that the entity is a non-profit organisation and is exempt from tax.
The said conditions have been proposed to ensure that the exemption is not misused through setting up of endowments for lesser-known universities in jurisdictions where no or minimal disclosures are available. Further, the AUM criteria is proposed to ensure that only the well-funded and diversified funds are eligible for the exemption.

II. Exemption in Case of Companies with No Identified Promoter and Low FPI Holdings

Firstly, the consultation paper proposes to relax the additional disclosure requirements for FPIs holding concentrated positions in corporate groups and listed companies where there is no room for circumvention of MPS requirements. However, the concerns regarding circumvention of SAST Regulations would persist.
Secondly, it proposes to relax the additional reporting requirement for FPIs with more than 50% of its India equity AUM in the following manner:
• If such FPI holds more than 50% of its India equity AUM in the corporate group, even after disregarding its holding in the apex company (with no identified promoter), it would come under the disclosure requirements of the August circular.
• If not, if the composite holdings of all such FPIs in the apex company in the group is less than 3% of the total equity share capital of the company, it would be exempted from the additional disclosure requirements.
It proposes that custodians and depositories will track the utilisation of this 3% limit for companies without an identified promoter at the end of each day. When the 3% limit is met or breached, depositories and custodians will make this information public before start of trading the next day. Thereafter, prospective positions in the company that breach the 50% concentration criteria in the corporate group will be required to either realign such positions below the 50% threshold within 10 trading days or provide disclosures prescribed under Para 7 of the August circular, provided that the aforementioned 3% cumulative FPI limit for the listed company continues to be in breach through the 10 trading days.

To access the consultation paper here, click here.