Though QFIs have been allowed to directly buy shares of Indian companies, SEBI has put several restrictions on investments and a slew of terms and conditions for monitoring QFI investment limits.

QFIs will necessarily have to give and take delivery of shares they sell or buy. They cannot square off their positions (buy or sell) intra-day. Each transaction by a QFI shall be cleared and settled on a gross basis. There will be no netting of transactions.

QFIs are not allowed to issue offshore derivatives instruments/ participatory notes. The depository participant (DP) is responsible for obtaining an undertaking from the QFI to this effect.

Direction on information

DPs have been directed to provide QFI-wise, ISIN-wise and company-wise buy and sell information to depositories on a daily basis on the day of execution of transaction within the time specified by the depository.

Stock exchanges have been asked to provide the details of paid-up equity capital of all the listed companies, ISIN-wise, to the depositories once in six months, and also provide information regarding changes in paid-up equity capital in any listed company, immediately.

SEBI said that the QFI and DP shall ensure that the total shareholding held by a QFI shall not exceed five per cent of the paid-up equity capital of a company at any point of time.

This limit shall be applicable to each class of equity shares having separate and distinct ISIN (applicable to shares with differential voting rights).

Monitoring

Depositories have been asked to have system which monitors the above-mentioned limit by using PAN and/or other unique identity number of the QFI.

SEBI also said that the total shareholding of all QFIs put together in a company shall not exceed ten per cent of the paid-up equity capital of the company at any point of time, in respect of each equity share class having separate and distinct ISIN.

Depositories have been asked to jointly publish/ disseminate the ISIN-wise and company-wise aggregate shareholding of QFIs to the public on a daily basis. The same information shall also be provided by depositories to RBI in a format stipulated by RBI.

When the aggregate QFI shareholding reaches eight per cent of the equity capital in a company, depositories shall publish the company's name along with the ISIN in a caution list. Once a scrip enters the caution list, no fresh purchases shall be allowed without prior approval of the depositories.

Caution list

Depositories have to inform DPs and exchanges whenever companies are included in and excluded from the caution list.

For fresh purchases by a QFI in equity shares of companies in the caution list, it will seek prior approval of the depositories in prescribed format.

Depositories shall provide the details of prior approval requests received to the other depository.

Depositories have been asked to give prior approvals on a first come first served basis after market hours, to requests for purchase of equity shares of companies in the caution list.

This would be based on the time of receipt of such request and in coordination with the other depository.

The approval shall be valid only for the next trading day.

If the aggregate QFI shareholding in a scrip exceeds 10 per cent for any ISIN (International Security Identification Number), the depositories shall jointly notify DPs regarding the breach along with the names of the QFI responsible for the breach.

Transaction details

For this stock exchanges shall provide the required information that enables a depository to identify the transaction details of the QFI.

On exceeding the aggregate 10 per cent limit the QFI due to whom the limit is breached shall mandatorily divest excess holdings within three working days of such breach being notified by depositories to the DP, said SEBI.

DPs have been asked to obtain necessary authorization from the QFI for such divestment of excess holdings at the time of account opening.

SEBI has asked exchanges to incorporate another investor class (the QFIs) and disseminate QFI shareholding in equity shares on or before June 30.

Separate segment

Exchanges have also been asked to develop a separate segment for intra-QFI transactions in the equity shares of companies in the caution list, if they wish to buy without the prior approval of depositories.

However, with prior approval QFIs may purchase equity shares in the normal segment of stock exchanges.

Finally stock exchanges, depositories and DPs have been directed not to levy any charges for providing services related to the monitoring and administering of QFI investment limits.

>raghavendrarao.k@thehindu.co.in

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