SEBI opens gate for FPIs to invest directly in debt

In a bid to bring in more money from abroad into the local corporate bond market and deepen its scope, capital market regulator SEBI will now allow foreign portfolio investors (FPIs) to access the debt segment directly, without having to go through brokers.

The Securities and Exchange Board of India (SEBI) will allow Category 1 (multilateral agencies, sovereign wealth funds) and Category II (banks, insurers, pension funds) FPIs to access the bond markets directly, besides allowing Category III (family offices, trusts) to access the bond markets through the electronic bidding platform. Right now, domestic institutions such as banks, companies and pension funds are allowed to bypass brokers when investing in corporate bonds; the new rules extend these rights to foreign investors, such as mutual funds and banks, as well.

SEBI also increased the limit of shareholding of FPIs in stock exchanges to 15 per cent from 5 per cent, UK Sinha, Chairman, SEBI, said at a press conference after its board meeting on Friday. The SEBI chief addressed journalists at the Patalganga campus of its institute, the National Institute of Securities Market, in Navi Mumbai.

SEBI also plans to put out a discussion paper to receive opinions of market participants on private equity funds entering into deals with the top brass of companies to compensate them on the company’s performance without shareholder approval. Such instances have the potential to fawn unfair practices, the regulator said.

Sinha said, “We came across an instance... if the price goes up beyond a certain level then the managing director would be given an incentive.... it was like a private benefit in a listed company. That, we plan to attack. We are concerned about such kind of agreements. We will come out with a discussion paper soon.”

On comments received for its recent discussion paper on high frequency and algo trading, the SEBI chief noted, “Those are all sponsored comments. We plan to have a detailed open consultation. SEBI has an open mind. We will consult everyone. We will do something. We are not worried about sponsored comments. You cannot browbeat SEBI just because you are powerful and noisy.” Many market participants voiced their protests against SEBI’s proposals to slow down algo trading in the market and regulate uneven access of some traders over others.

Following its extensive public consultation on changes to boost the market for infrastructure and real estate investment trusts (InvITs and REITs), SEBI announced that it has proposed a two-level special purpose vehicle structure through a holding company, besides reducing the mandatory sponsor holding in both these entities to 15 per cent from 25 per cent. REITs will be allowed to invest up to 20 per cent in under-construction assets and the definition of real estate projects has been expanded to include hospitals and hotels.

SEBI has also facilitated the entry of portfolio managers located offshore by implementing the safe harbour norms whereby they would not be taxed for being present in India through an eligible fund manager. This aligns the regulations with the Budget announcement.

Employees of companies going public can now apply for shares up to ₹5 lakh each, higher than the current limit of ₹2 lakh, but this will be considered only in the event of under-subscription of the portion reserved for employees. Also, SEBI will float a consultation paper proposing changes to the investment advisor regulations. It will reconsider the exemptions from registration provided to mutual fund distributors and will grant three years for such distributors to gain the certification required to become advisors.

Henceforth, intermediaries will get to permanently register with SEBI, the board has decided. “After successfully implementing this initiative with brokers/sub-brokers, we will now be extending this to all intermediaries, such as credit rating agencies, debenture trustees, merchant bankers and others,” Sinha added.

SEBI said it also plans to open two more local offices at Vijayawada and Agartala, the former covering Andhra Pradesh, and the latter catering to Manipur, Mizoram and Tripura.

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