FPI detour for illegal punts on D-Street cut off
investors cannot hide behind overseas insurance firms and cells and sub-funds of offshore pooled vehicles which step in as foreign portfolio investors (FPIs) to surreptitiously own shares and manipulate stocks of companies listed in India.
A standard operating procedure (SOP) finalised by custodians of FPIs and the Securities and Exchange Board of India (Sebi) over the weekend has laid down the ground rules to stop the misuse of such overseas investment entities, two persons familiar with the subject told ET.
The SOP comes in the wake of the new disclosure regulations that would compel any FPI breaching certain investment limits to reveal the identities of every individual behind the entities which have put money in the fund or have control over it. The rigorous disclosure rules will be triggered on an FPI whose exposure to equities in India crosses ₹25,000 crore, or which has invested 50% of its India assets under management in stocks of companies belonging to a single corporate group.
The regulations, which will come into effect from November 1, are a fallout of the fiasco caused by the American short-seller Hindenburg which alleged the Adani group of price manipulation and accounting fraud.
However, certain FPI entities — depending on their ownership, constitution and purposes — are exempted from the disclosure regulations as long as they fulfil and demonstrate some criteria.
Overseas insurance (and reinsurance) entities and pooled investment vehicles, besides pension funds and exchange-traded funds, are in the exempted category, albeit under certain conditions.
Unlike insurers in India, overseas insurance companies offer products where the investor has a say in how the money is deployed. Under such an
