Recently, SEBI has taken some important decisions with the intent of promoting ease of doing business for the stock markets and the FPIs in India. These decisions, brought in due consultation with concerned stakeholders, may change the settlement deadline for certain scrips and brokers, the disclosure requirement for certain FPIs and promote ease of compliance for the listed companies. In a nutshell, SEBI move is going to promote greater transparency and ease of doing business in India.
1. Launch of Beta version of optional T+0 settlement
The existing T+1 rolling settlement was introduced in September, 2021 which was fully implemented w.e.f. January 27, 2023 by the Market Infrastructure Institutions (MIIs) in a phased manner. SEBI has recently introduced Beta version of T+0 rolling settlement cycle on an optional basis for a limited set of 25 scrips and with a limited number of brokers, in addition to the existing T+1 settlement cycle in Equity Cash Markets keeping in view the significant evolution of technology, architecture, and capacity of Market Infrastructure Institutions (MIIs) vide the Circular dated March 20, 2024..
MIIs comprise of all stock exchanges, clearing corporations and depositories. Since India’s depository eco-system has visibility of individual client level holdings in digital form and the payments and settlements ecosystem has the capacity to allow for real time transfer of funds, a shorter settlement cycle is expected to bring not only cost and time efficiency but also promote transparency in charges to investors and strengthen risk management at clearing corporations and the overall securities market system.
1.1 Operational guidelines for T+0 Settlement
SEBI has issued the operational guidelines in this regard are as under:
- All investors are eligible to participate in the segment for T+0 settlement cycle, if they are able to meet the timelines, process and risk requirements as prescribed by the MIIs.
- The surveillance measures as applicable in T+1 settlement cycle shall be applicable to scrips in T+0 settlement cycle.
- One continuous trading session from 09:15 AM to 1:30 PM.
- The price in the T+0 segment will operate with a price band of +/- (plus-minus)100 basis points from the price in the regular T+1 market. This band will be re-calibrated after every 50 basis points movement in the underlying T+1 market.
- T+0 prices will not be considered in index calculation and settlement price computation. There shall be no separate close price for securities based on trading in T+0 segment.
- There shall be no netting in pay-in and pay-out obligations between T+1 and T+0 settlement cycle.
1.2 Dissemination of information
The MIIs are going to publish other operational guidelines (including mechanism for trading, clearing and settlement, risk management, etc.) and Frequently Asked Questions (FAQs) along with the list of 25 scrips for the Beta version of T+0 settlement cycle and disseminate the same on their respective websites. On periodic basis, MIIs shall also disseminate the list of brokers that are participating in the Beta version of T+0 settlement cycle on their websites.
1.3 Getting Feedback from the stakeholders
MIIs are required to provide a fortnightly report on the progress of activities in the Beta version of T+0 settlement cycle till further direction from the SEBI. SEBI shall continue to do further stakeholder consultation including with users of the Beta version of T+0 settlement cycle. All MIIs have been advised to
- take necessary steps and put in place necessary systems for implementation of the above;
- make necessary amendments to the relevant bye-laws, rules and regulations, wherever required, for the implementation of the above; and
- bring the provisions of this circular to the notice of market participants (including investors) and also to disseminate the same on their websites
2. Towards promoting ease of doing business for FPIs in India
SEBI vide its recent Circular dated March 20, 2024 has amended Circular dated August 24, 2023 issued for mandating additional disclosures by FPIs that fulfil certain objective criteria. As per the Circular dated August 24, 2023, SEBI had Mandated additional disclosures by Foreign Portfolio Investors (FPIs) particularly the ones who hold concentrated portion of their equity portfolio in a single investee company/ corporate group. Such concentrated investments raise the concern and possibility that promoters of such investee companies/ corporate groups, or other investors acting in concert, could be using the FPI route for circumventing regulatory requirements such as that of disclosures under Substantial Acquisition of Shares and Takeovers Regulations, 2011 (SAST Regulations) or maintaining Minimum Public Shareholding (MPS) in the listed companies.
Granular details of all entities holding any ownership, economic interest, or exercising control in the FPI, on a full look through basis, up to the level of all natural persons, without any threshold, were mandatorily required to be provided by:
- FPIs holding more than 50% of their Indian equity Assets Under Management (AUM) in a single Indian corporate group; or
- FPIs that individually, or along with their investor group (in terms of Regulation 22(3) of the FPI Regulations), hold more than INR 25,000 crore of equity AUM in the Indian markets.
Economic interest was defined as returns from the investments made by the FPI. The Ownership interest indicated ownership of shares or capital of the entity or entitlement to derive profits from the activity of the entity. Control is said to have the same meaning as mentioned in Regulation 2(f) of the FPI Regulations.
Some important amendments are discussed below.
2.1 Certain FPIs exempted from Additional disclosure requirements
SEBI vide Circular dated August 24, 2023 exempted, FPIs satisfying any of the criteria listed under Para 8 of the said Circular from the additional disclosure requirements, subject to conditions specified in the said Circular.
Now, in addition to the criteria listed under para 8 of the said circular dated August 24, 2023, the FPIs having more than 50% of their India equity AUM in a single corporate group are exempt from additional disclosure requirements as specified in para 7 of the said circular, subject to compliance with all of the following conditions:
- The apex company of such corporate group has no identified promoter;
- The FPI holds not more than 50% of its India equity AUM in the corporate group, after disregarding its holding in the apex company (with no identified promoter); and
- The composite holdings of all such FPIs (that meet the 50% concentration criteria excluding FPIs which are exempted or have disclosed) in the company with no identified promoter, is less than 3% of its total equity share capital of the apex company.
2.2 Tracking of the utilization of this 3% limit for apex companies
Custodians and Depositories are required to track the utilization of this 3% limit for apex companies, without an identified promoter, at the end of each day. When the 3% limit is met or breached, Depositories shall make this information public before start of trading on the next day.
Thereafter, for any prospective investment in the apex company by FPIs, that meet the 50% concentration criteria in the corporate group, the FPIs shall be required to either realign their investments below the 50% threshold within 10 trading days or make additional disclosures prescribed in the said Circular dated August 24, 2023 provided that no such requirement, to realign or make disclosure, shall be applicable unless the 3% cumulative limit for the apex company continues to be met through the said 10 trading days.
All other provisions specified in the said Circular dated August 24, 2023 shall remain unchanged. For FPIs that met the objective criteria specified under Para 7(a) of the said Circular dated August 24, 2023, as on October 31, 2023 and neither realigned their portfolio within the specified time-period nor were exempted, additional disclosures were required to be made on or before March 12, 2024. It is clarified that such FPIs who met the conditions specified under Para 2 above, as on March 12, 2024, shall not be subjected to actions consequent to non-disclosures, as specified in Para 12 and Para 13 of said Circular dated August 24, 2023.
Disclaimer: The materials provided herein are based on Author’s own understanding and is shared solely for information purposes. The information presented on this site does not constitute legal or professional advice and should not be relied upon for such purposes or used as a substitute for legal advice from a competent authority. For complete details refer the above-mentioned circulars at www.sebi.gov.in under the link “LEGAL > Circulars”.