SEBI sets norms for ‘safe' foreign investments in stocks

Our Bureau Mumbai | Updated on November 16, 2017 Published on January 13, 2012


Qualified Foreign Investors can open only one demat account

Stock market regulator SEBI on Friday prescribed detailed guidelines for qualified foreign investors (QFIs) to directly invest in the Indian equity market. A QFI is a resident of a country compliant with the Financial Action Task Force (FATF) standards to combat money-laundering and terrorist financing.

The country should also be a signatory to the International Organisation of Securities Commission's Multilateral Memorandum of Understanding, said SEBI. The QFI should not be an Indian resident or registered with SEBI as a foreign institutional investor or sub-account.

QFIs meeting the Know Your Customer requirements have been allowed to invest in equities listed on Indian stock exchanges in a demat account opened with a SEBI-registered qualified Depository Participant (DP). SEBI has prescribed a set of parameters for a DP to qualify for doing business with QFIs. DPs with a minimum paid-up capital of Rs 50 crore, that are themselves a clearing bank or having membership of a clearing corporation are eligible. They are expected to have appropriate arrangements for inward and outward remittance of foreign currency with a designated Authorised Dealer (AD) Category I bank. DPs are expected to comply with FATF Standards, Prevention of Money Laundering and extant SEBI rules and obtain prior approval from SEBI before commencing activities relating to opening of accounts with QFIs. DPs with SEBI approval for routing QFI investments in mutual funds need not obtain fresh approvals, said SEBI. DPs have been directed to ensure that QFIs make only transactions such as primary market purchases, secondary market purchases and sales through brokers on exchanges, rights-issue subscriptions, receipt of shares relating to bonus, stock-split and consolidation.

QFIs can also receive shares arising from amalgamation, demerger or such other corporate actions, subject to investment limits. They are also eligible for dividends, allowed to tender equity shares in open offers, delisting and buybacks.

SEBI said a QFI can open only one demat account with any one of the DPs and can buy and sell equity shares only through that DP. For joint accounts, every holder shall meet the requirements specified for QFIs and each shall be deemed to be holding a demat account as a QFI.

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Published on January 13, 2012
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