FPIs Seek Relaxation in Disclosure Norms and Renewal Tenure

Context:

Foreign Portfolio Investors (FPIs) have collectively urged the Securities and Exchange Board of India (SEBI) to introduce regulatory relaxations aimed at enhancing operational efficiency, reducing compliance burden, and aligning Indian markets with global best practices. The key demands include extending licence renewal tenure, introducing a Closing Auction Session (CAS), and relaxing granular disclosure norms for large private funds.

Key Requests by FPIs

• Extension of FPI Licence Tenure from 3 to 5 Years
  • FPIs currently renew their registration with SEBI every three years, involving re-submission of ownership details and payment of renewal fees.
  • Fund managers argue that ownership structures rarely change materially within three years and that material changes are already reported promptly.
  • A 5-year cycle would reduce compliance overhead and signal India’s commitment to ease of doing business.
• Introduction of Closing Auction Session (CAS)
  • CAS is a mechanism used globally (e.g., US, Hong Kong, Japan, EU) to determine more accurate closing prices.
  • Unlike the current Volume-Weighted Average Price (VWAP) model used in India, CAS is less prone to manipulation by large trades at the closing bell.
  • CAS helps passive funds reduce tracking error by enabling price discovery based on the volume-weighted median trade during the session.
  • SEBI had released a consultation paper on CAS in 2023, but no final implementation has followed yet.
• Exemption from Granular Disclosures for Large, Broad-Based Private Funds
  • Current SEBI rules mandate FPIs with either:
    • Over 50% of Indian AUM in a single corporate group, or
    • Over ₹50,000 crore AUM in Indian equities,
      to disclose the identities of the last natural persons behind each investor.
  • Exemptions exist for sovereign wealth funds, retail public funds, and regulated pooled vehicles.
  • FPIs now want similar exemption extended to large, well-regulated private funds with broad investor bases, which resemble the earlier “broad-based fund” regime.

TET