Market Profiles

FII Market Entry Requirements for India

RBC IS operates a segregated account structure in this market.

Please refer to 'Market Account Opening Requirements' for information on the market requirements. Clients are requested to refer to the requirements for information purposes only.

For further information or support around accessing this market, please contact your RBC IS representative.

Currently 4 Stock Exchanges are recognised by the Securities Exchange Board of India (SEBI) located all over India, however, market activity is concentrated at The BSE Ltd (BSE) and the National Stock Exchange of India Ltd (NSE), which constitute 99% of the market share in terms of turnover (BSE has a market share of 22% and NSE has a market share of 77%).

The BSE Ltd (BSE)
Formerly an Association of Persons (AOP), the Exchange is now a demutualised and corporatised entity incorporated under the provisions of the Companies Act, 1956, pursuant to the BSE (Corporatisation and Demutualisation) Scheme, 2005 notified by the Securities and Exchange Board of India (SEBI). 

National Stock Exchange of India Ltd (NSE)
NSE was incorporated in 1992 and on its recognition as a stock exchange under the Securities Contracts (Regulation) Act, 1956 in April 1993, NSE commenced operations in the Wholesale Debt Market (WDM) segment in June 1994. Subsequently, NSE closed WDM and made available “NEGOTIATED TRADE REPORTING PLATFORM”. The Capital Market (Equities) segment in November 1994 and operations in Derivatives segment in June 2000. Currently more than 1921 securities are available for trading on NSE.

Both NSE and BSE operate three different market segments: the Capital Markets segment for equities, Negotiated Trade Reporting Platform for fixed income and the Derivatives segment for futures and options.

BSE and NSE have automated online screen based trading systems, which allow orders to be placed at a “pre-determined” or “best” price. The automated screen based trading system for BSE is known as the BOLT (BSE on Line Trading) system and for NSE it is known as the NEAT (National Exchange for Automated Trading) system.

The online trading systems follow the principles of an order driven market, which facilitates efficient input of orders and automatic matching, resulting in faster execution of orders in a transparent manner. The member-brokers enter orders for purchase or sale of securities from work stations connected to the exchange trading systems. Order matching is anonymous (i.e. the orders are matched by the exchange system) and the identity of the counterparty is not revealed.

Orders are assigned a unique order number by the trading system (for a member broker, security and transaction type) and time-stamped on entry by the member broker by the trading system. The orders are processed for potential match. Pending orders are stored in different 'books' based on price-time priority in the following sequence:

• Best Price
• Within Price, by time priority.

Price priority - of two orders entered into the system, the order with the best price gets the higher priority for trade matching.

Time Priority - of two orders having the same price, the order entered earliest gets the higher priority for trade matching.

Order Matching - the trading system sorts pending orders in price-time priority for order matching purposes by matching the best buy order and best sell order. Best buy order is the one with the highest price and the best sell order is the one with the lowest price (the system sorts buy orders from the seller point of view and vice versa). Orders may match with more than one order resulting in multiple trades for an order.

Member brokers can place market orders (which will be matched with the best available order) or limit orders (wherein member can specify the price for the order), which will remain a part of order books until matching. 

Additionally, member brokers can place conditions at the time of order entry. These conditions are as under:

• Time Conditions: these conditions, as the name suggests, can be classified as Day orders, Good till Cancelled, Good till Date order and Immediate or Cancel order.
• Price conditions: this permits members to specify conditions to execute the trade at specified price or best price. Members can also place stop loss orders.
• Quantity conditions: the member can disclose a part of the order quantity to the market. For example, an order for quantity 1000 at a limit price can specify a disclosed condition of quantity 200. This will ensure that only 200 quantity at a point of time is displayed to the market. Once this quantity is traded, another quantity 200 is automatically released and so on till the full order is executed. The Exchange may set a minimum disclosed quantity criteria from time to time.
• Minimum FPI: these orders allow the trading member to specify the minimum quantity by which an order should be filled.
• All or none orders: all or none orders allow a trading member to impose the condition that only full order should be matched against.

[Please note that debt securities are mainly negotiated bilaterally and subsequently reported to the stock exchanges.]

Equities:
BSE: Monday to Friday – 09:15 to 15:30 hours 
NSE: Monday to Friday – 09:15 to 15:30 hours

Debt
BSE: Monday to Friday – 09:00 to 17:00 hours 
NSE: Monday to Friday – 09:00 to 17:00 hours 

Futures and options 
BSE: Monday to Friday – 09:15 to 15:30 hours
NSE: Monday to Friday – 09:15 to 15:30 hours

ISIN (International Securities Identification Number): Used for all equities and dematerialised debt.

Other: Government Securities are identified by the Loan Code assigned by RBI and they also have ISIN allotted to each security. Treasury Bills are identified by their maturity date and tenure and also have unique ISIN.

Reserve Bank of India (RBI) - RBI was established under the Reserve Bank of India Act, 1934 and is the central banking authority of India. It regulates general banking, foreign exchange and money market operations. For Foreign Portfolio Investors (FPIs), the RBI has provided a general approval to open INR accounts (post receipt of SEBI approval), monitors overall foreign ownership limits and stipulates conditions for repatriation of funds.

Securities and Exchange Board of India (SEBI)
SEBI was established under The Securities and Exchange Board of India Act, 1992, to regulate capital market intermediaries and is the securities market regulator. SEBI is also responsible for ensuring investor protection and overseeing the operations of intermediaries such as Mutual Funds, Merchant Banks, FPIs and Custodian/Designated Depository Participants (DDPs), amongst others. 

SEBI has issued regulations for FPIs, custodian, Depositories, Portfolio Managers, Mutual Funds, Underwriters, Merchant Bankers and other Capital Market intermediaries. In addition to registering and regulating intermediaries and service providers, SEBI is also vested with powers to issue directions to any person/persons related to the securities market or to companies in matters related to issuance of capital, transfer of securities and disclosures.

Stock Exchanges: Stock Exchanges are constituted as self-regulatory organisations and are supervised by SEBI. They regulate members on most policy-related and operational issues including regulating trading to prevent excessive speculation and avoid member defaults. The regulatory measures include imposition of margins and defining price bands (circuit filters), suspension of trading in specific instruments and in extreme cases, halt trading. A Governing Board, represented by non-broker public representatives and SEBI nominees manage the day-to-day operations of the exchanges.

Depositories: National Securities Depository Ltd (NSDL) and Central Depository Services (India) Ltd (CDSL) are recognised depositories empowered by the Depositories Act and SEBI (Depositories and Participants) Regulations. Such powers include provision of depository services through Depository Participants and enabling settlement of trades through the depository mode.

Please note SEBI has permitted foreign entities having actual exposure to Indian commodity markets, to participate in the commodity derivative segment  of  recognized stock exchanges for hedging their exposure . Such foreign entities shall be known as “Eligible  Foreign  Entities ” (EFEs).

Securities: can be held in dematerialised form only with the National Securities Depository Ltd (NSDL) or the Central Depository Services (Indian) Ltd (CDSL). Nearly all equities have been converted into dematerialised form

T-Bills: can be safe kept in book-entry at the Public Debt Office (PDO) of RBI.

Government bonds: State and Government bonds are issued in book entry. Mostly FPIs hold Gov-Secs in book entry form at the RBI through their custodian banks. Govt. Secs can also be held in dematerialised form in the demat accounts maintained at NSDL or CDSL. 

Corporate bonds: are held in dematerialised form.

The FPI regulations mandates FPIs to hold or transact securities only in dematerialised form.

All unlisted public companies are required to issue securities in dematerialised form. It is compulsory for holders of securities of unlisted public companies to have such securities dematerialised before transfer and before subscribing shares under private placement or bonus shares or rights offer. Furthermore, SEBI amended the listing regulations to mandate the transfer of securities of listed companies in dematerialised form with effect from April 1, 2019.

The Minimum price variation unit is INR 0.01

Index-based market-wide circuit breaker:
Based on the recommendations of the Secondary Market Advisory Committee (SMAC), SEBI partially modified the index based market-wide circuit breaker mechanism in September 2013. The modifications to the system of index based market wide circuit breaker are as mentioned below:

a) Daily revision of index based market-wide circuit breaker limits:

1. 
   b) Resumption of trading after the halt with a pre-open call auction session
   
   Post-observation of the trading halt, stock exchange shall resume trading in the cash market with a fifteen minutes pre-open call auction session in terms of the existing pre-open call session guidelines. In order to accommodate such pre-open call auction session, the extant duration of the market halt shall be suitably reduced by fifteen minutes. Accordingly, the revised index based circuit filters would apply as follows:

1. c) Dynamic Price Bands
   
   The stock exchanges have implemented appropriate individual scrip wise price bands in either direction, for all scrips in the compulsory rolling settlement except for the scrips on which derivatives products are available or scrips included in indices on which derivatives products are available.
   
   For scrips excluded from the requirement of price bands, stock exchanges have implemented a mechanism of dynamic price bands which prevents acceptance of orders for execution that are placed beyond the price limits set by the stock exchanges. Such dynamic price bands are relaxed by the stock exchanges as and when a market-wide trend is observed in either direction.
   
   Stock exchanges were instructed to set the dynamic price bands at 10 per cent of the previous closing price for the following securities:
   
   (a) Stocks on which derivatives products are available,
   (b) Stocks included in indices on which derivatives products are available,
   (c) Index futures,
   (d) Stock futures.
   
   In the event of a market trend in either direction, the dynamic price bands could be relaxed by the stock exchanges in increments of 5 per cent.
   
   In partial modification to the above, SEBI has advised that the reference price for the dynamic price bands in the pre-open session and subsequent trading sessions will be previous day's closing price.
   
   Further to the above, the NSE and BSE in October 2013 announced the changes to the market wide index circuit breaker mechanism for their respective indices. 
   
   The NSE has further advised that if the normal market is closed due to index based market-wide circuit filter breach anytime during the order collection period for a new listing of a security (IPO), relisting of a security, Small and Medium Enterprises (SME) securities and illiquid securities periodic call auction session, the respective sessions shall be closed immediately and all outstanding orders of these sessions shall be cancelled.
   
   A fresh session on the same day shall be conducted for new security (IPO) and relisting of a security. The fresh session shall be for duration of 1 hour out of which 45 minutes is for order collection/ modification/ cancellation, 10 minutes is for order matching and 5 minutes is buffer period. This session shall close randomly anytime between the 44th and 45th of the order collection period. The periodic call auction sessions for illiquid securities shall be held at the next scheduled time after the start of normal market. A copy of the notifications issued by the BSE can be reffered below: https://www.bseindia.com/markets/MarketInfo/DispNewNoticesCirculars.aspx?page=20131011-22

If the normal market is closed due to Index based market-wide circuit filter breach anytime during the order matching period for a new listing of a security (IPO), relisting of a security, SME securities and illiquid securities period call auction, the matching process shall be completed.

Scrip price bands:
In addition to the market-wide index-based circuit filters, there are individual scrip price bands for all scrips in the compulsory rolling settlement. These price bands are fixed at 2, 5, 10 and 20% for companies, as specified by the BSE and NSE, and are revised from time to time.

All the equity securities (including below securities listed on stock exchange) which were under T+2 settlement have been transitioned to T+1 rolling settlement effective from January 27, 2023.

• Close ended mutual fund schemes
• Debt Securities (including corporate bonds)
• Sovereign Gold bonds
• Government Securities, Treasury bill and State Development loan
• Real estate investment trusts
• Infrastructure investment trusts
• All other existing securities trading in normal segment or trade for trade segment and not covered under the above points such as exchange traded funds, depository receipts, etc.

A FPI can participate in a Primary Auction of government securities. Similarly the Central/State Government in India or the Reserve Bank of India may purchase securities from FPIs through an Open Market Operation (OMO). Primary Market Settlement Cycle is T+1 for both Open Market Operation (OMO) and Primary Auction. 

* Debt instruments are available for trading in two market segments:

The retail debt market lacks depth. The bulk of the market volumes are transacted on the Negotiated Trade Reporting (NT) segment of NSE. Transactions are reported by brokers on BSE and NSE NT are either settled on NSDL/CDSL for corporate bonds and the Negotiated Dealing System (NDS) of the RBI for Government bonds, through the Clearing Corporation of India Ltd (CCIL). .FPIs have been permitted to invest in unlisted corporate debentures/bonds subject to end use restriction on investment in real estate business, capital market and purchase of land. FPIs are also allowed to invest in securitised debt instruments.

For secondary market government bonds trading, broker is not mandatory for FPIs. Further, SEBI has also provided flexibility to Category I & II FPIs allowing them to trade in corporate bonds directly and not through broker.

Corporate debt securities are settled on Delivery versus Payment (DVP) basis mostly and are available for settlement from T+0  to T+2 on BSE and NSE However, most trades settle on T or T+1.

Dedicated debt segment on Stock Exchanges 
The market for debt securities differs from equity markets in several ways such as risk, returns, liquidity, type of participants and method of trading. While publicly issued debt securities are listed, traded and settled in a manner similar to equity, privately placed debt is usually traded between institutional investors on ‘Over the Counter' (OTC) basis. Such OTC transactions are mandatorily reported on reporting platforms at FIMMDA, BSE and NSE. The settlement for such transactions is different from that in equity markets or publicly issued debt securities. 

In order to cater to the unique characteristics of debt markets, SEBI decided to provide dedicated a debt segment on the stock exchanges. Accordingly, SEBI permitted stock exchange to set up a dedicated debt segment by making an application to SEBI, providing operational, regulatory and any other necessary details. 

The debt segment shall offer separate trading, clearing, settlement, reporting facilities and membership to deal in:

1. “debt instruments” means the instruments listed under Schedule 1 of the Foreign Exchange Management (Debt Instruments) Regulations, 2019;

An FPI may purchase the following debt instruments on repatriation basis subject to the terms and conditions specified

by the Securities and Exchange Board of India and the Reserve Bank:

(a) dated Government securities/ treasury bills;

(b) non-convertible debentures/ bonds issued by an Indian company;

(c) commercial papers issued by an Indian company;

(d) units of domestic mutual funds or Exchange-Traded Funds (ETFs) which invest less than or equal to 50 percent in equity;

(e) Security Receipts (SRs) issued by Asset Reconstruction Companies;

(f) debt instruments issued by banks, eligible for inclusion in regulatory capital;

(g) Credit enhanced bonds;

(h) Listed non-convertible/ redeemable preference shares or debentures issued in terms of Regulation 6 of these Regulations;

(i) Securitised debt instruments, including (i) any certificate or instrument issued by a special purpose vehicle (SPV) set up for securitisation of asset/s with banks, Financial Institutions or NBFCs as originators;

(j) Rupee denominated bonds/ units issued by Infrastructure Debt Funds;

Provided this will include such instruments issued on or after November 22, 2011 and held by deemed FPIs.

(k) Municipal Bonds :

Provided that FPIs may offer such instruments as permitted by the Reserve Bank from time to time as collateral to the recognized Stock Exchanges in India for their transactions in exchange traded derivative contracts as specified in sub-Regulation 2 of Regulation 5.

The broad framework/ features for debt segment is as under- 

(A) Listing: This segment shall list all the securities and debt instruments mentioned above. 

(B) Trading:

1. The debt segment must offer electronic, screen based trading providing for order matching, request for quote, negotiated trades etc.
2. The trading facility may be provided using exchange network including using access methods such as internet trading, mobile trading or any other methods specified by SEBI.

• The debt segment must provide separate platforms for the markets described below
  (a) Retail market - which shall be a market for listing of and trading in publicly-issued debt instruments and where participation by registered trading members can be on their own account or for execution of orders placed their clients.
  (b) Institutional market – which shall provide for trading in both publicly issued and non-publicly (privately) issued debt instruments with a market lot size of minimum INR 10 million. For trading in smaller lot sizes of minimum INR one million in respect of privately issued debt instruments in the institutional market, a separate odd lot window may be provided. Debt securities in institutional platform shall be available for trading with settlement day as T+1.

1. In addition to institutional investors, Direct Market Access (DMA) facility shall be extended to other investors to participate in the Institutional market of debt segment.

(C) Trading Rules:

1. The trading hours shall be from 9:00 hours to 17:00 hours to be in alignment with trading hours of government securities as issued by RBI.
2. The day count convention of Actual/ Actual shall be followed for calculating interest rates.

• The stock exchange shall facilitate availability of price quotes on clean price, dirty price and yield.

1. There shall be no shut period during which trades/ transfers are restricted for payment of interest or part redemptions. For other corporate actions such as redemptions/ put-call options, issuers may choose to specify a shut period.
2. The record date shall be fixed not more than 15 days prior to date of corporate action which shall be displayed on trading terminal by stock exchanges.
3. In case of negotiated trades by members of the debt segment, the trades shall be reported to stock exchange within 30 minutes of the trade.

(D) Settlement
Settlement Cycle: The trades settled on gross basis in debt segment shall have settlement cycle of T+1. In case of trades settled on DVP-I basis, stock exchanges will have flexibility to settle trades on T+0 or T+1.

Settlement Basis: 

• Retail Market:The stock exchanges shall continue to settle trades on DVP-III basis in retail market of debt segment for publically issued corporate bonds.
• Institutional market:The stock exchanges may provide settlement on DVP-III basis for publicly issued corporate bonds and for such privately placed corporate bonds which meet certain selection/ eligibility criteria to be specified by the exchanges.

1. The minimum selection/ eligibility criteria for privately issued corporate bonds to be eligible for DVP-III settlement shall include the following:
   (a) The corporate bonds shall have a minimum rating of AA+ (or similar nomenclature). 
   (b) The yield spread of corporate bonds over similar residual tenure government securities shall not exceed 150 basis points. 
   (c) New corporate bonds listed during the month shall also be eligible for DVP-III settlement if they meet the rating and yield spread criteria stated at (a) and (b) above. 
   (d) In case of existing corporate bonds, only liquid bonds shall be permitted. The stock exchanges may consider one or more following factors while defining liquid bonds- 
   (i) Bonds to have traded for at least 5 trading days in every month ( including both exchange trades and reported trades) ; 
   (ii) Bonds to have minimum trading volumes of INR 250 million in every month (including both exchange trades and reported trades)
2. The list of eligible bonds may be reviewed on monthly basis and made applicable from 15th of subsequent month.
3. In all other cases, privately issued corporate bonds shall continue to settle on DVP-I basis.

(E) Risk Management: 
With respect to Government Securities trades, major function of a Clearing Corporation of India Ltd. (CCIL) is to reduce risks of its members from failed trades arising out of the defaults by their counterparties. By becoming central counterparty to the trades done by its members, the Corporation absorbs risk. It manages the risks through its risk management processes in such a manner that the ultimate risk to its members from fails is either eliminated or reduced to the minimum. Margin is applicable on all the Government Bond/ T-Bill trades as per the latest margin factor published by the CCIL on their website.

With the implementation of T+1 settlement for equity trades, there will not be any margins that will be collected from client.

As per SEBI - Master Circular for Stock Exchange and Clearing Corporation – All transactions executed on the stock exchanges shall be settled through the Clearing Corporation/House of the stock exchange

Please be informed that converting a trade into hand delivery may lead to the below:

• The broker is monetarily penalized by the exchange for conversion of trade to hand delivery which the broker may decide to pass on to the client. The penalty is around 0.1% of the trade amount subject to a maximum of INR 10,000 per day.
• Importantly, SEBI (capital market regulator) has mandated that Institutional trades (including FPI trades) should mandatory settle through the clearing house mechanism and devolvement of trade on the broker (hand delivery) is something which is viewed very seriously by the regulator.
• SEBI may also request for information and question the reason for trades being converted to hand delivery which client would have to provide.

Considering the above, we request you to send the trade instruction within the SCB deadline so that the trade can be confirmed on exchange.

Please note that trade confirmation market deadline is 7.30am IST on T+1 and accordingly all trades need to be matched confirmed to clearing house. If not, then trades will settle via hand delivery mode before 10.20 am . Any un-confirmed trades will settle through hand delivery and may have associated penalties.

Note on Hand delivery Settlement Process:

Hand Delivery Settlement process for Purchase trade: In case of purchase trade i.e RVP trade which is converted to hand delivery mode, client will have to ensure that their valid matching instruction along with funds are place latest by 14.00 pm IST on T+1. In this case, the broker will receive the securities from the clearing corporation and same will be passed on by the broker to client’s account. Standard Chartered Bank will remit funds to the broker only after receipt of securities in client’s depository account with Standard Chartered Bank in order to secure the settlement process and eliminate the counterparty risk for the client.

Hand Delivery Settlement process for Sale trade: In case of Sale trade i.e. DVP trade which is converted to hand delivery mode, client will have to ensure that their valid matching instruction are in place with Standard Chartered Bank before 8.30 am IST on T+1. This will enable Standard Chartered Bank to co-ordinate with the broker for settlement. Kindly note in case of Sale trade, the broker will have to ensure that they remit the funds to Standard Chartered Bank to secure the settlement process and eliminate the counterparty risk for the client. Post collecting funds from broker, Standard Chartered Bank will deliver the securities to the broker for settlement of trades. If securities are not delivered to the broker on value date (T+1 before 10.30 am IST -Market deadline), then it will result in buy-in of trade on the exchange platform. The broker will get charged for the buy-in cost and same may be passed on to the client for settlement with the broker.

Note on penalties:

Buy-in of Equity trades: Exchanges have instituted buy-in (auction) procedures that will kick in where a delivering member does not meet obligations. The exchange conducts auctions to acquire shortages from the market i.e it purchases the required quantity (the short delivery) from the market and delivers them to the original buying member. The buy-in schedules for T+1 settlement is as under:

In case the exchange is unable to procure the required quantity of shares through the buy-in, the deal is closed out by paying the purchaser cash in lieu of the securities. In case the auction price is higher than the valuation price, the difference is debited to the account of clearing member delivering short. In cases where the valuation price exceeds the auction price, the excess is not returned to the party at fault for the short delivery. Such excesses are credited to the “Investor Protection Fund” maintained by the Exchange.

Close-out: Where an auction does not deliver the quantity necessary to meet the shortage, the Exchanges close such shortages out, and deliver cash to the member receiving short (by a compensating debit to the member delivering short). The close-out price is the higher of:

• The highest price for the security recorded on the Exchange from the trade date till the date of auction

AND

• Twenty percent above the closing price on the date of auction

Penalty for Short Delivery: Besides incurring the cost involved in acquiring shares through the buy-in (or close-out), the defaulting delivering member is penalised. On the BSE & NSE, this penalty amounts to 0.05% per day of the contracted settlement value of the shortage.

Reporting: The reporting platform made available by stock exchanges under the earlier SEBI circulars shall be merged with the negotiated window or facility for RFQ or other such similar facility provided by debt segment of exchanges for enabling reporting of OTC trades or facilitating OTC trades. This platform shall be available for reporting of trades by both members and non-members. 

(F) Trade repository: With an objective to have centralised repository for trades in debt instruments, the stock exchanges shall report trade information to a common trade repository as may be specified by SEBI. 

The NSE announced the launch of this dedicated debt segment in May 2013. Salient features are as follows:

Market Timings 

For T+0 
Monday to Friday: 09:00 to 15:00 

For T+1 
Monday to Friday: 09:00 to 17.00

Price quotes
The trading and price quotes for publicly issued debt instruments shall be on the basis of clean price

Interest rate – Day count convention 
The day count convention of Actual / Actual shall be followed for calculating accrued interest

Price ranges of debt security 
The daily price ranges applicable to publicly issued debt securities shall be kept at +/-1 per cent of the base price. In respect of orders which have come under price freeze, the members would be required to confirm to NSE that there is no inadvertent error in the order entry and that the order is genuine. Upon receipt of this confirmation, NSE may take appropriate action. 

Trade modification requests 
Trading members can modify trades with respect to client codes. Order level trade modification facility for modifying client codes associated with all trades of the order shall be available. 
Trade cancellation requests 
Requests for trade cancellation, if any, permitted by NSE will be allowed on the same trading day during normal market hours.

Trading platforms
Retail platform order matching for trading of publicly issued debt instruments
Institutional platform order matching for trading of non-publicly issued debt instruments

Key features of these platforms are as follows:

Institutional platform

Base Price and operating ranges applicable to the Debt security on the first day.
Base price of the non-publicly issued debt security on the first day will be the previous day closing price for the debt security in the wholesale debt market segment. The base price of the non-publicly issued debt security on subsequent trading days shall be the daily closing price of the debt security in the debt segment.

For debt securities on institutional platform

• Settlement can be only in dematerialised mode and on a trade for trade basis
• No settlement Guarantee shall be provided
• Trades shall be settled on T+1 rolling basis

Retail platform

Base Price and operating ranges applicable to the debt security on the first day
Base price of the publicly issued debt security on the first day shall be the previous day closing price for the debt security in the capital market segment. The base price of the publicly issued debt security on subsequent trading days shall be the daily closing price of the debt security in the debt segment.

For debt securities on retail platform

• Settlement can be only in dematerialised mode and on a net obligation basis
• Settlement Guarantee shall be provided
• Trades shall be settled on a T+1 day rolling basis

Margins
A uniform margin rate of 10 per cent for debt securities with rating of AA and above and 25 per cent for all other debt securities shall be applicable. Initial margin shall be payable on all open positions of Clearing Members, up to client level, and shall be payable upfront by Clearing Members in accordance with the margin computation mechanism and/ or system as may be adopted by the Clearing Corporation from time to time.

Upfront Margins on Non-Institutional Equity Trades
Effective September 1, 2020, the NSE Clearing Limited introduced below norms for the collection and reporting of upfront margins by trading members (TM) / clearing members (CM) in the cash market for trades by non-institutional investors:

• A required minimum of 20% upfront margin in lieu of VaR and ELM will be collected by TMs/CMs
• For collections of other margins, TMs/CMs will have until ‘T+2’ working days
• If adequate upfront margins have been collected by TMs/CMs to cover the potential losses over time until pay-in, TMs/CMs will not be required to collect Mark To Market losses (MTM) from clients. TMs/CMs will otherwise be required to collect MTM from their clients by T+2.
• TMs/CMs will be required to report a single value consolidating minimum margin, additional margins and MTM collected.

Based on the funding and early pay-in arrangement, local custodian could confirm the non-institutional trade and report to exchange that margin is collected from the client or early pay-in is done on T date itself. If local custodian cannot confirm the trade on T date, then the trade will devolve to broker and they need to provide and report margin to exchange for T day. The local custodian again will have option on T+1 to confirm the trade and report to exchange that margin is collected for T+1. In this case, broker still need to confirm margin for T+0 or will be penalised for any short collection / non-collection. Broker may pass on the funding cost or penalty to the client.

The investor types considered as non-institution for this purpose are as follows: 

• Category II foreign portfolio investor (FPI) under the sub-category of corporate bodies, individuals and family offices
• Foreign direct investors/global depository receipt/foreign currency convertible bond accounts (except if such accounts are linked to Category I FPI and Category II FPI other than the three sub-categories mentioned above, then these are treated as institution)
• SEBI-registered Alternative Investment funds
• SEBI-registered Portfolio Management Service providers
• SEBI-registered Foreign Venture Capital Investor

INR

BSE and NSE are the primary exchanges for trading in equities. OTC trading in equities is therefore limited to unlisted securities. Further, regulations mandate that FPIs transact only on the floor of the Exchange through SEBI registered brokers. While debt instruments (government bonds and corporate bonds) are mainly negotiated bilaterally the corporate bond trades are required to be subsequently reported to the Stock Exchanges (reporting platform CBRICS (NSE) and ICDM (BSE)) and government bond trades on to Clearing Corporation of India Ltd (CCIL) through NDS-OM system.

FPIs can invest in unlisted non-convertible debentures and securities debt instruments. However, investment in unlisted non-convertible debentures is subject to minimum residual maturity of above one year and end use-restriction on investment in real estate business, capital market and purchase of land.

Equities: Equity trades follow a T+1 settlement cycle and clearing is affected by the clearing houses of BSE and NSE. The timelines for settlement on T+1 are:

Pay-in of funds: 10:30 on T+1
Pay-in of securities: 10:50 on T+1
Pay-out of funds: 13:30 on T+1
Pay-out of securities: 13:30 T+1

Settlement for foreign investors is effected by custodian based on instructions of investors; the custodian settles the transaction directly with the clearing house. Effective September 19, 2005, institutional investors are mandated to compulsorily clear and settle trades through the clearing house mechanism. However any trade not confirmed to Clearing Corporation will devolve upon the broker for settlement and attract penalty charges at the rate of 0.1% of the transaction value, subject to a maximum of INR 10,000. 

As mentioned, settlement is effected directly between the custodian and the designated clearing-house on T+1. Such trades need to be confirmed by custodian to the Clearing Houses by 07:30 IST on T+1 (i.e. confirm to the clearing house that the counterparty for settlement will be the custodian and not the broker). In case of non-confirmation, the obligation to settle the transaction automatically devolves on the broker through whom the trade has been executed.

FPIs can execute OTC secondary market transactions in Government Securities with settlement cycle either as T+1 or T+2. However, all trades are required to be reported to NDS-OM on trade date itself. 

Settlement cycle for secondary market G-Sec trades undertaken by FPIs on NDS OM Web platform is T+1.

The process flow for settlement of Equity Trades is detailed below:

Trade Date (T)
Receipt of contract note and trade instructions: brokers deliver electronic contract notes for transactions on trade date to local custodian (by 20:30). The broker also sends a copy of the contract note (or other bilaterally agreed means) to the investor. 

Trade Date +1
Investors will instruct their custodian banks usually on T or the latest on T+1 (by 05:00 IST) in order to meet local deadlines.

Pre-matching
Local custodian pre-match trade instructions against contract notes post receipt of Contract note, client instruction and exchange order file. Mismatches are notified real time on the date of receipt of trade instructions.

On successful pre-matching of client trade instructions with the broker‘s contract note, for clearing house trades, local custodian provide a confirmation to clearing houses by 7:30 AM IST on T+1. This is to intimate the Clearing House that custodian/DDP will settle the trade on behalf of the clients, instead of the broker. In the absence of a confirmation, broker is the default counterparty for the trade. 

Trade Date +1
Payment for securities: Payment of funds for securities is effected by the custodian from the client's INR account to the counterparty (Clearing house or broker) after successful pre-matching of trade instructions. Payment is made prior to receipt of securities for Clearing House trades and after receipt of securities for trades which have devolved on the broker for settlement. The Pay-In for securities and funds occurs by 11:00. In case clients have opted for early pay-in of fund to avoid levy of margins, payment is made to clearing house on T+1, 

Receipt of securities
Securities are received by the custodian from the counterparty (Clearing house or broker) and credited to the investor's custody and depository account (for dematerialised securities). 

The Pay-Out of securities and funds begins at 13:30 and is normally completed by 16:00.

Local custodian will transfer securities and cash to the respective investors' accounts on a gross, trade by trade basis.

Margins: 
All Institutional investors including FPIs who execute trades in the equity cash market, on the floor of the exchange, will be subject to payment of margins which are levied on the custodian after the trades are confirmed by custodian on T+1 by 13.00. Local custodian are required to recover these margins from clients, to ensure margin payment to the clearing houses.

The different types of margins are:

• Value at Risk (VaR) margins: a VaR Margin is a margin intended to cover the largest loss that may be faced by an investor on outstanding open positions on a single day with a 99% confidence level.
• Extreme Loss Margins (ELM): ELM aims at covering the losses that could occur outside the coverage of VaR margins.
• Mark To Market (MTM): MTM is calculated at the end of the day on all open positions by comparing trade price with the closing price of the share for the day.
• Effective from May 1, 2010, Qualified Institutional Buyers (QIBs), including Foreign Portfolio Investors (FPI), are required to pay 100% margin when applying for any public issue.

MTM margins can be netted at the client level, for same day positions of the client i.e. the losses in some scrips can be set off/netted against profits of some other scrips. VaR and ELM cannot be netted because neither the VaR nor the ELM can take a negative value for any security to allow it to be netted with the VaR or ELM requirements of another security. In case there is a negative difference in VaR between TD and TD+1 (i.e. VaR of TD+1 < VaR of TD), VaR margin is not netted by the exchange and is only returned on TD+2.

Margin payments are made to the stock exchanges by 18:30 on T+1 for all trades confirmed to the clearing house by the custodian. The custodian has to deposit margins at the exchange latest by 16:00. In order facilitate payment to stock exchanges custodian will debit clients cash account, latest by 16:00.

For any reason, if a particular trade is not confirmed to the clearing-house the margin obligation is transferred to the broker. In such a case the concerned broker will have to deposit margin the clearinghouse.

The margin obligation of a client is paid to the clearinghouse by 18:30 of T+1. Once the pay-in of securities and funds is effected on T+2; the exchange releases the margins on the same day along with the payout. The benefit of release of margins is available to the clients and is reduced from the clients' margins obligations of that day. Please note that margin once deposited with the clearinghouse is returned only after custodian on behalf of clients submit a release request to the clearinghouse.

Clients may choose not to pay margins by availing the early pay-in facility provided by the clearing houses. Early pay-in for sale trades is when securities are delivered to the clearing-house on T+1 by 15:00, as early pay-in of shares, and early pay-in for purchase trades is when the settlement obligation is paid to the clearing-house on T+1 by 15:00, as early pay-in of funds. Margins will not be levied on all trades where early pay-in of funds / securities is executed.

Cross Margin:
All categories of investors including Foreign Portfolio Investors (FPIs) who execute trades on both, cash and derivatives segments will be able to avail of the revised cross margining facility. Positions that are eligible for the cross margin benefit will be levied a spread margin. Currently, the spread margin is 25% of the applicable upfront margins on the offsetting position.

For cash market positions where early pay-in of securities / funds has been executed, the cross margin facility will not be provided.

Positions eligible for cross-margin benefit: 
Cross margining will be available across both the cash and derivatives segment and to all categories of market participants. The positions of clients in both segments to the extent they offset each other will be considered for the purpose of cross margining as per the following priority:

1. Index futures and constituent stock futures in derivatives segment
2. Index futures and constituent stock positions in cash segment
3. Stock futures in derivatives segment and stock positions in cash segment.

In order to receive the cross margin benefit as per the first two cases, the basket of constituent stock futures / stock positions must be a complete replica of the index futures. Stock exchanges will specify the number of units of the constituent stocks / stock futures required in the basket to be considered as a complete replica of the index from time to time.

The positions in the derivatives segment for the stock futures and index futures must be in the same expiry month to be eligible for cross margining benefit.

Positions in option contracts will not be considered for cross margining benefit.

Computation of cross margining benefit:

• The computation of cross margining benefit will be done at client level on an online real time basis and provided to the trading member / clearing member /custodian, as the case may be, who in turn will pass on the benefit to their clients.
• For institutional investors the positions in the cash segment will be considered only after confirmation by the custodian on T+1 basis and on confirmation by the clearing member in the derivatives segment. The existing cross margining benefit provided to institutional investor will be discontinued on implementation of new cross margining methodology.
• The positions in the Cash and derivatives segment will be considered for cross margining only till time the margins are levied on such positions.
• The positions which are eligible for offset will be subject to spread margins. The spread margins will be 25% of the applicable upfront margins on the offsetting positions or such other amount as specified from time to time.
• The difference in the margins on the total portfolio and on the portfolio excluding off-setting positions considered for cross margining, less the spread margins will be considered as cross margining benefit.

Please note that as per our subcustodian's discussions with NSE and BSE, investors are not required to enter into agreements with their custodian/ brokers to avail the cross margin benefit. Additionally, the file informing the cross margin benefit provided to investors will not be sent to the custodian/clearing member until 18:00 Indian Standard Time making it difficult for clients to avail of the cross margin benefit.

When placing an order, the portfolio manager has to quote the following information to his broker:

• The name of the subcustodian/DDP bank.
• The Identification Number (ID) of the Depository Participant (DP) through whom the settlement will be effected.
• The FPI registration code and your exact FPI registration name (unregistered FPIs are not allowed to place order).
• The stock exchange on which trade was conducted i.e. NSE/ BSE;
• If for a sale payment is effected by cheque, it must be a banker's cheque and issued in favour of the FPI or in favour of local subcustodian/DDP.
• As per SEBI guidelines, the broker has to deliver the contract note to the local subcustodian/DDP no later than 10:30 on T+1. Note that most contract notes are in electronic form.
• UCC code (unique client code) for FPI. The UCC code is attributed by the Stock Exchange and needs to be quoted by the client to its broker while trading in the Indian market.
• A copy of the PAN ID card as delivered by the Tax Agent of the investor.

Government securities: 
Trades are mainly negotiated bilaterally and subsequently reported to the stock exchanges (WDM Segment). Trades reported and confirmed on the Negotiated Dealing System Order Matching (NDS OM) are cleared through Clearing Corporation of India Ltd (CCIL). NDS is an electronic dealing platform set up by the Reserve Bank of India (RBI) primarily for transactions in government securities (outright transactions and repurchase contracts [repos]). Besides secondary market transactions, this system also provides the facility of electronic bidding in primary market auctions and the RBI's Liquidity Adjustment Facility (LAF)/Open Market Operations (OMO) auctions. 

Clearing and Settlement of trades reported on NDS OM are settled by CCIL which provides counterparty guarantee (novation) for all trades routed through NDS. The settlement is effected in book entry form through Subsidiary General Ledger (SGL) Accounts maintained by custodians/primary members at RBI. 

Effective 14 March 2015, CCIL has made compulsory for all the CSGL A/c holders to register their Gilt Account Holders (GAHs) i.e. clients on CCIL’s CORE system. Non-registration on CORE will not allow both CSGL A/c holders and counterparty to report the transactions on NDS OM. 

Settlement of all trades in government securities through CCIL is on a standardised T+1 basis. However, FPIs are allowed to settle their OTC secondary market G-Sec transactions either on T+1 or on T+2 basis. Trades are to be reported by both counterparties on NDS OM platform. NDS OM system is available on working days (Monday to Friday) until 17:00 IST. Both purchase and sale transactions are required to be reported and matched/confirmed on NDS OM reporting system before 17:00 IST on Trade day itself.

All matched trades on NDS will be settled by CCIL after verification of risk exposure limits under guaranteed settlement. All trades (both purchase and sale) on NDS are to be backed by margins, which is a function of the margin factor announced by CCIL every fortnight. These margins are released one day after settlement of a trade.

CCIL computes securities and funds obligation for each member and intimates RBI, who debits/credits respective securities accounts and funds accounts at the end of the day. RBI intimates CCIL on completion of transfers. The members in turn debit or credit securities and funds to clients' accounts. CCIL confirms the movement of securities on NDS at end of the day.

Pre-matching: For Government Securities trades are matched by the buyer and seller on NDS. 

Trade confirmation: Government securities to be settled with CCIL are required to be confirmed on NDS. 

Effective 22 April 2013, RBI / CCIL utilises their existing settlement platforms viz. CROMS and NDS OM to settle trades in G-Sec including Treasury Bills. This information is useful to clients who are eligible to trade in G Secs.

Prior to 22 April 2013, trades in G-Secs are settled on NDS PDO Platform based on client's trade instructions and other supporting documentation. The trade is initiated by the seller, confirmed by the purchaser on T and settled by the custodian/DDP on T+1.

Effective 22 April 2013, trades in G-Secs will settle in the following manner:
Repo/Reverse Repo Trades: CCIL Repo Order Matching System (CROMS) 
Outright Trades: Negotiated Dealing System Order Matching (NDS OM) 
For Free of Cost and Auction trades: eKuber System 

Key features of CROMS and NDS OM:

• On CROMS and NDS OM, any party (Buyer or Seller) can initiate a trade.
• Trades are matched based on trade details input by Buyer and Seller.
• For outright trades the buyer as well as seller has to put the outright trade on NDS OM. There will be only two legs, i.e. one leg each for the buyer as well as Seller.
• For Reverse repo, both counterparties need to individually report their respective legs of the trade on CROMS. There will be only two legs, i.e. one leg each for the buyer as well as seller.
• There is no time period for expiry of trades. All unmatched trades input during market hours will automatically expire at 1700 hours India Standard Time. 

Important Note: In addition to the current matching parameters, which form part of trade instructions, two additional parameters viz. the time the deal was struck and the counterparty name have been introduced as a matching criteria. Thus, for the purpose of order matching, the time the deal was struck between the buyer and seller and the name of the counterparty must mirror.

Funding and settlement: Government securities settle either on T+1 or on T+2 basisand corporate debt trades settle on T +0 to T+2 as per the bilateral agreement between the parties. The investor's INR account will be debited towards payment of funds for securities purchased after successful pre-matching of trade instructions and ensuring availability of funds. 

The process flow is explained diagrammatically here: 

Note: The Margin amount collected on the Confirmation day, will be refunded to the client’s cash account on Settlement Day +1.

Effective  December 1, 2016, FPIs have been permitted to trade Government securities in the secondary market through Negotiated Dealing System – Order Matching (NDS-OM) Web module. Trades executed on this module are settled on T+1 basis only. FPIs intending to access NDS-OM Web platform for direct dealing in secondary market G-sec transactions are required to obtain digital signature certificate for registration on NDS-OM Web. Trades executed on this platform would require pre-funding.

Corporate debt: 

Effective from December 1, 2009, corporate bonds listed on the National Stock Exchange of India Limited (NSE), settle through the NSE Clearing Ltd (NSE Clearing) (formerly known as National Securities Clearing Corporation Limited (NSCCL)). 

Registration procedure:
Participants are required to submit the details of their bank and depository accounts, through which the pay-in and payout will be completed, to NSE Clearing in the specified format. RBC Investor Services' subcustodian/DDP will provide the required details to the NSE Clearing on behalf of our clients.

Reporting platform
The FIMMDA trade reporting and confirmation platform known as FIMMDA's Trade Reporting and Confirmation (F-TRAC) is used for reporting trades in CDs, CPs and Repos in Corporate Bonds. Investors using the F-TRAC system for reporting of CP/ CD trades should indicate their preferred Clearing Corporation for trade settlement while selecting the ‘intention to settle' option on the reporting platform.

NSE has notified the introduction of the new web based negotiated trade platform for reporting of all the deals in debt instruments. Accordingly:

Any one party to the deal (trading member) can report the negotiated trade done in debt securities. The new platform also provides facility to report "both side trade" in single order entry. The negotiated trade entered by a trading member can be confirmed by the counter party member if all parameters are accurate. While reporting of order/trade an option is provided to trading members for seamlessly sending the trade for the settlement on CBRICS (Corporate Bond Reporting & Integrated Clearing and Settlement Platform).

Registration
All entities that are mandated to report deals in these securities need to register with the new platform and will need to submit the participation application form and execute the participant application agreement provided by FIMMDA for access of F-TRAC by paying the registration fees of INR 25,000/- along with the annual maintenance charges would also be levied on the basis of number of transactions as per the slabs specified by CDSL.

Reporting
The obligation to report a transaction for eligible participants shall be as follows:

Transactions shall be reported on F-TRAC by eligible participants only in respect of those trades which are required to be reported on F-TRAC as per the directives/ circulars issues by the SEBI, the RBI or any other competent regulator in respect of the concerned market from time to time.

Both the counterparties to every trade are required to report accurately and completely all relevant details of the trade as stipulated/required for F-TRAC, as set out in the attached document or as communicated by FIMMDA from time to time. Consequent to reporting of trade details by both the counterparties they will be matched internally by the F-TRAC and upon matching, market related information would be disseminated on the F-TRAC and FIMMDA website
If the reported transaction is marked for settlement through the eligible clearing house, the trade data would be sent to respective clearing house through the Straight through Processing (STP) immediately upon matching at near to online basis. 

The above mentioned reporting process is applicable only for CP and CD trades. However, currently FPIs are not permitted to invest in CPs and CDs. However, FPIs can invest in CPs through Voluntary Retention Route (VRR) for debt market investments.

Settlement schedule:
The settlement of corporate bond trades takes place 09:30 - 17:30 (local time) on all exchange trading days for three settlement cycles: trade date (T)+0, T+1 and T+2. 

Pay-in deadlines are as follows:

• T+0 day - 15:00
• T+1 day - 11:00
• T+2 day - 11:00

Settlement procedure:
All trades will be settled at participant level on DVP I basis i.e. on gross basis for securities and funds. The settlements will be carried out through the bank and depository accounts specified by the participants.

On the settlement date, during the pay-in, participants will be required to transfer the securities to the depository account specified by NSE Clearing and transfer the funds to the bank account specified by NSE Clearing within the stipulated cut-off time.

On successful completion of pay-in of both securities and funds, the securities/funds will be transferred by NSE Clearing to the depository / bank account of the counterparty.

Failed transactions:
If either of the participants/local custodian/DDP fails to honour their pay-in obligation, either fully or partially, within the stipulated time, the transaction will be cancelled and will not be considered for settlement. The securities/funds received towards the pay-in obligation will be returned back to the respective participants/ local custodian.

Effective December 7, 2009, corporate bonds listed on the BSE will settle through the through the Indian Clearing Corporation Limited (ICCL).

Timeline of reporting / availability of settlement system:
The BSE Indian Corporate Debt Market (ICDM) system will be open for reporting from 10:00 to 17:30 (local time) on all exchange trading days.

Three settlement cycles, trade date (T)+ 0, T+1 and T+2, will be available for reported transactions. Pay-in timelines are as follows:

• T+0 day - 15:30
• T+1 day - 15:30
• T+2 day - 15:30

The pay-out of funds/securities will be processed within one hour of the pay-in deadline. Additional settlement cycles for T+1 and T+2 deals may be provided in the future.

Registration:
Registered participants will have to provide settlement details, i.e. the bank account number and depository account number in the ICDM system, for the purpose of settlement of reported transactions.

Registered intermediaries will also be able to provide the details required for settlement completion for their unregistered clients. Additionally, custodian may act as registered participants on behalf of their clients after obtaining requisite approvals from them.

A broker will be able to enter the bank and provide details of their clients, from then these clients will also be treated as registered participants. For example a broker may register details of an FPI on the system, after which the FPI will be treated as a registered participant.

Settlement procedure:

• If an intermediary has reported the transaction on behalf of an unregistered participant, the intermediary must confirm the trade. For example, broker reports trades on behalf of FPIs and confirmation of the trade is completed by the custodian of the FPI.
• Intermediary can also report cross deal on behalf of a registered participant, in such cases the registered participant will be required to confirm the deal on the ICDM platform.

Custodian confirmation can be done up to 15:00 on trade date for T+0 settlement and up to 10:30 on the respective settlement days in the case of T+1 and T+2 settlement.

Once trades are confirmed, custodian will have to transfer securities from the investors depository account and transfer them to the ICCL pool account before the stipulated pay-in timings. Accordingly, custodian will have to complete the pay in of funds to the ICCL transitory pool account with the RBI before the stipulated pay-in timings.

After matching the pay in of funds and securities, the ICCL will effect the pay-out simultaneously by transferring the funds to the seller's account and securities to the buyer's account as per the details updated by the participants in the system.

Failed Transactions:
A trade will be treated as cancelled under the following circumstances:

• The seller fails to transfer the securities by the cut-off time for pay in of securities.
• The buyer fails to transfer the funds by the cut-off time for pay in of funds.
• In case of cancelled deals, the securities or funds that have been transferred to the ICCL pool account will be returned back to the respective participant.
• Part transfer (pay in) of funds or securities by a participant will not qualify for settlement and such part pay-in of funds or securities will be returned back to the respective participants.

The process flow for trades executed through the ICCL is detailed below:

Settlement Flow 

Corporate Bonds/ Commercial Papers through NSE Clearing

Corporate Bonds/ Commercial Papers through Indian Clearing Corporation Limited (ICCL)

Currently, FPIs are not permitted to invest in Commercial Papers (CPs) and Certificate of Deposits (CDs). However, FPIs investing in debt markets under Voluntary Retention Route (VRR) are allowed to invest in CPs.

In India “Short selling” is defined as selling a stock which the seller does not own at the time of trading.

Naked short selling is not permitted in the Indian securities market and accordingly, all investors would be required to mandatorily honour their obligation of delivering the securities at the time of settlement. 
No institutional investor including FPIs, are allowed to do day trading i.e., square-off their transactions intra-day. In other words, all transactions will be grossed for institutional investors at the custodian level and the institutions will be required to fulfil their obligations on a gross basis.

This is not permitted in the Indian capital market.

Both the main stock exchanges in India i.e. the BSE Limited and the National Stock Exchange of India Limited (NSE) have their own clearing houses which take care of the settlement and clearing of trades executed on these stock exchanges.

The BSE clearing house is operated by Indian Clearing Corporation Ltd (ICCL); an wholly subsidiary of the BSE

The clearing house for NSE is the NSE Clearing Ltd (NSE Clearing) (formerly known as National Securities Clearing Corporation Ltd. (NSCCL)) which is a wholly owned subsidiary of NSE.

The ICCL and the NSE Clearing facilitate securities settlement through the depositories and financial settlement through their clearing banks. Each clearing members, i.e. brokers and custodian are required to maintain a bank account with one of these clearing banks. . With implementation of SEBI’s framework on interoperability among clearing houses, custodians have to designate a preferred clearing house to clear and settle trades done by their clients of any of the stock exchanges. 

In case of government securities, the RBI utilises the services of the Clearing Corporation of India Limited (CCIL) to perform cash netting and compute participant-wise settlement obligations. Therefore the Clearing Corporation of India Limited (CCIL) acts as clearing agency for the trades done in government securities. With implementation of SEBI’s framework on interoperability among clearing houses, custodians have to designate a preferred clearing house to clear and settle trades done by their clients of any of the stock exchanges. Accordingly, local custodian has designated NSE Clearing under this framework with effect from July 2019. Accordingly, clearing and settlement of trades executed by our clients on any of the recognized stock exchanges are being facilitated by NSE Clearing Limited.

National Securities Depository Ltd (NSDL) and Central Depository Services (India) Ltd (CDSL) - act as depositories for Equity, Corporate Debt and some Government Securities. They are incorporated under the Companies Act, 1956 as public limited companies limited by shares and are for profit institutions. NSDL and CDSL facilitate clearing of trades through depository participants, by enabling securities transfers across beneficial owners, inter-se and to/from clearing members, based on transfer instructions.

Investors are permitted to open accounts only through depository participants and not directly with the depository. However, the depositories maintain record of beneficial ownership details of all depository account holders. A depository participant can be a bank, financial institution, a custodian/DDP, a broker or any entity eligible as per SEBI (Depositories and Participants) Regulations, 1996.

Depositories maintain a three-way interface between the Stock Exchanges, the depository participants and the issuer companies / registrars and transfer agents (R&T). The depositories are electronically linked to each of these via a satellite link or through leased land lines.

Reserve Bank of India (RBI) - is the depository for dated government securities and treasury bills. RBI was established under an act of parliament (The Reserve Bank of India Act, 1934). Investors (Constituents) can hold securities through members of RBI only. Members of RBI hold a securities account for this purpose tilted Subsidiary General Ledger (SGL) account and under this account, the members maintain securities holdings of their constituents i.e. clients. Such accounts are termed as Constituent Subsidiary General Ledger (CSGL) accounts.

BIS is an international organisation which fosters cooperation among central banks and other agencies in pursuit of monetary and financial stability. The Committee on Payments and Market Infrastructures (CPMI) uses three common structural approaches, or models, to categorise the links between delivery and payment in a securities settlement system.

Indian equity market follows model 3 of DVP, as proposed by the committee of BIS, where the instructions for both securities and funds are settled on a net basis, with final transfers of both securities and funds occurring at the end of the processing cycle. This model can eliminate principal risk by ensuring that final transfers of securities (on a net basis) are made if and only if final transfers of funds (on a net basis) are made.

Securities are registered in the name of the beneficial owner (in the name registered with SEBI in case of FPIs). Omnibus and nominee account structures are not recognised in India. 

Book-Entry: For dematerialised securities, beneficial ownership is automatically deemed to be transferred to the beneficiary upon credit of shares to its depository account. All corporate benefits are accrued/notified directly to the beneficial owners.

Physical: Registration, as a separate process, is applicable only to secondary market transactions in physical securities. Registration (for physical securities) involves the buyer (or the buyer's custodian/DDP) sending share certificates along with all the documents to the company or its share registrar who records the change in ownership and issues a new certificate or endorses the old certificate in the name of the beneficial owner. Legislation requires that the company complete the registration process within 30 days. Shares sent for registration cannot be traded.

For all transactions in the securities market i.e. on market and off-market / private transactions, involving the transfer of shares in physical form of listed companies, it is mandatory for the transferee i.e. buyer, to furnish the copy of the Permanent Account Number (PAN) card to the company / Registrar and Transfer Agents (RTAs) for registration of such transfer of shares.

Buyers must pay stamp duty at 0.25% at the higher of the consideration (in case of equity shares), or the current market value, and this must be evidenced on the transfer deeds for registration to be effected. For corporate bonds, stamp duty varies from state to state and is based on the rate applicable in the state in which the company's registered office is located. FPIs are not allowed to trade / hold securities in physical form. Moreover, as per the SEBI guidelines all listed securities must be dematerialised before the transfer. 

A registrar provides a service to listed companies. The core tasks of a registrar are: 
1. Maintaining a register of holders of shares (and other registered securities). 
2. Dealing with corporate actions such as dividend payments.

Depending on the securities involved, registration can vary from 30 to 60 days. Please note that stamp duty has to paid at the time of sending the shares for registration.

Shareholdings in this market may be required to be disclosed by the beneficial owner, particularly when such shareholdings reach or exceed prescribed disclosure limits. Investors must ensure that they comply in full by reporting such holdings to the appropriate organisations, within the specified timeframe. If you have any questions regarding this issue we encourage you to consult your legal counsel.

Failure to comply with the reporting requirements in this market may attract penalties and / or other sanctions.

• An investor who acquires 5% or more shares or voting rights in a company (held alone or acting in concert) is required to file disclosures of its aggregate shareholding and voting rights within two working days of the receipt of intimation of allotment of shares, or the acquisition of shares or voting rights.
• Additionally, subsequent purchases or sales (alone or acting in concert) that result in 2% or more changes in ownership of the shares or voting rights must also be reported by the investor within two working days of the receipt of intimation of allotment of shares, or the acquisition of shares or voting rights.
• Investors who hold 10% or more shares or voting rights in a company (held alone or acting in concert) are required to file disclosures of their shareholding and voting rights as of March 31, within seven working days.
• Disclosures must be made to the company and all the stock exchanges on which the company is listed.
• Acquisition and holding of any convertible security will also be regarded as shares, and disclosures of such acquisitions and holdings must be made.

SEBI (Substantial Acquisition of Shares & Takeovers) Regulations, 2011: as per these regulations, an acquirer (with persons acting in concert*) is required to make an initial disclosure is required on acquisition of 5 per cent or more shares or voting rights. The disclosure has to be made upon receipt of intimation of allotment of shares, or the acquisition of shares or voting rights in the target company to the target company at its registered office and every stock exchange where the shares are listed within 2 working days.

Shares taken by way of encumbrance ("encumbrance" shall include a pledge, lien or any such transaction, by whatever name called) shall be treated as an acquisition, shares given upon release of encumbrance shall be treated as a disposal, and disclosures shall be made by such person accordingly. 

Subsequent disclosures required at every 2 per cent change in holdings – either increase or decrease. The disclosure has to be made upon receipt of intimation of allotment of shares, or the acquisition of shares or voting rights in the target company to the target company at its registered office and every stock exchange where the shares are listed within 2 working days.

The Regulations define Persons Acting in Concert to include FPIs with sub-accounts (unless proved to the contrary), therefore, the reporting is required to be made at an FPI level (consolidated across sub-accounts).

Standard Operating Procedure for seeking additional disclosures from certain objectively identified Foreign Portfolio Investors (FPIs), in accordance with SEBI circular no. SEBI/HO/AFD/AFD-PoD-2/CIR/P/2023/148 dated August 24, 2023

1. SEBI vide circular no.: SEBI/HO/AFD/AFD-PoD-2/CIR/P/2023/148 dated August 24, 2023 (hereinafter referred to as ‘August 24 SEBI circular’), has mandated obtaining additional granular disclosures of entities/ individuals having any ownership, economic interest, or control rights in the FPI that have either concentrated single corporate group exposures and/ or significant overall holdings in their India equity investment portfolio.
2. Additional disclosure under the aforesaid circular is to guard against possible misuse of FPI route to circumvent the requirements prescribed under:
3. Minimum Public Shareholding (“MPS”) requirement mandated under Rule 19(2)(b) and 19A of the Securities Contracts (Regulation) Rules, 1957 (“SCRR”)
4. SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 on direct or indirect acquisition of shares or voting rights or control over Target Company

• Press Note 3 dated April 17, 2020, mandating that an entity of a country that shares land border with India, or where the beneficial owner of an investment into India is situated in or is a citizen of any such country, can invest only under the Government route.

3. To harmonize the procedure amongst all FPIs / DDPs / Custodians / Depositories / Stock Exchanges / Clearing Corporations, this Standard Operating Procedure (SOP) has been prepared by these stakeholders, in consultation with SEBI, to achieve uniformity in implementation of procedure.

• Applicability: FPIs breaching the threshold mentioned in Para C (7) of the August 24 SEBI circular shall be required to provide additional granular data of all entities with any ownership, economic interest, or control in the FPI, on a full look through basis, up to the level of all natural persons / entities exempted from providing such additional granular details through the aforesaid circular or this SOP.. This policy is applicable only for FPIs having valid registration.
• The format for additional disclosures at granular level to be made by the FPI to its DDP / Custodian is enclosed in Annexure A.
• The granular disclosures should include all entities with any ownership interest, economic interest, or control in the FPI on a full look through basis. The disclosure should be made up to the level of all natural persons / entities exempted through the circular or SOP from providing such additional details.
• The names of all natural persons / entities having direct ownership, economic interest, and control rights in the FPI, shall be identified by the FPI and provided to its DDP / Custodian as per format provided in Table 1 of Annexure A.
• For the entities identified in Table 1 of Annexure A that are non - individuals and are not exempted from providing additional disclosures as per August 24 SEBI circular, names of all entities having ownership, economic, and control rights, without any threshold, in each such entity shall be identified and provided by the FPI in the format provided in Table 2 of Annexure A. This iterative process shall persist with until all natural persons/ exempted entities holding any ownership, economic interest, or control rights in the FPI, directly or indirectly, have been identified.
• Exemption from making the additional disclosures as prescribed under: The following entities have been exempted by SEBI from providing the additional details:
• Government and Government related investors registered as Category I FPIs under Regulation 5 (a)(i) of the SEBI(FPI Regulations), 2019 i.e., central banks, sovereign wealth funds, international or multilateral organizations or agencies including entities controlled or at least 75% directly or indirectly owned by such Government and Government related investor(s). This is already being identified by the DDPs while granting registration to such FPIs.
• Public Retail Funds (PRF) - Pension Funds: Pension funds shall include superannuation or similar schemes that provides retirement benefits to employees/ contributors. Pension / retirement / provident plans or any such benefit funds of:

1. Commercial Establishments and Corporate Groups; or
2. International or Multilateral Organizations Agencies; or

• Government / State established plans for state employees, or a certain group of population of state or general population; or FPIs which have 100% investor(s) from such government / state established plans

1. Pension funds, which a statutory authority / regulatory body for overall supervision and regulation of pensions in the jurisdiction / state govern. List of jurisdictions / states along with respective statutory authority / regulatory body / state body is provided in Annexure B.

For commercial establishments and corporate group pension funds, the DDP shall verify the name of the pension fund from the websites of the regulators / government / state authorities (provided in Annexure B) and obtain an original or duly attested/ certified document filed with/ obtained from some regulator / government / state authority, which corroborates that the FPI is in the nature of a pension fund.

For pension funds falling in points (ii) to (iv) above, the DDP shall either verify the name of the pension fund from the websites of the regulators / government / state authorities (provided in Annexure B) or rely upon an original or duly attested/ certified document filed with/ obtained from some regulator / government / state authority, which corroborates that the FPI is in the nature of a pension fund..

The certification/ attestation shall be carried out by people authorized to do the same as per the Master Circular for FPIs and DDPs.

• Public Retail Funds - Insurance/ Reinsurance entity:
  • Insurance and reinsurance entities or its sub funds / schemes, where segregated portfolio with one to one correlation with a single investor is not maintained, qualify as Public Retail Funds as defined under Regulation 22 (4) of the FPI Regulations and shall be exempted for the purpose of additional disclosures if the entities are regulated or supervised by the relevant regulator in their home jurisdiction in the same capacity in which they propose to make investments in India.
• DDP shall verify that the FPI (or its parent / legal entity) is regulated or supervised by the relevant regulator directly from the registry or the website of such regulator. In case details in this regard are not available publicly, DDPs shall obtain original or certified/ attested copy of the certificate/ document evidencing that the FPI is in the nature of regulated insurance/ reinsurance scheme, issued by the concerned regulator/ authority. The DDP shall also obtain sufficient documentation, and not rely on mere declaration by the FPI, to satisfy itself that the FPI is not maintaining segregated portfolio with one to one correlation with a single investor. The certification/ attestation shall be carried out by people authorized to do the same as per the Master Circular for FPIs and DDPs.
• In case the aforementioned process has been carried out by the DDP at the time of granting registration/ renewal of registration to such entities under the category Appropriately Regulated – Insurance or Reinsurance entities (Regulation 5 (a) (iii) of the SEBI (FPI) Regulations, 2019), the DDP may place reliance on the same.
• Public Retail Funds in the nature of Mutual Funds and Unit Trusts):
• As per Regulation 22(4) of the FPI Regulations. mutual funds or unit trusts which are open for subscription to retail investors and which do not have specific investor type requirements like accredited investors are PRFs. Such FPI may be incorporated in various forms depending on the jurisdiction such as Act 1940 investment companies/ funds in USA, Managed Investment Schemes in Australia, Undertakings for the Collective Investment in Transferable Securities (UCITS) and SICAV (Société d'Investissement à Capital Variable/ Investment Company with Variable Capital) in European Union, etc. It is further noted that some Exchange Traded Funds (ETFs) that are PRFs by nature may also claim exemption under the PRF categories.
• List of jurisdictions along with their regulator, the respective laws / regulations requiring the securities to be offered to public, the link where list of such PRFs can be obtained etc. is provided in Annexure C.
• Pooled investment vehicles registered with / regulated by a Government / regulatory authority in their home jurisdiction or country of incorporation / establishment / formation
• Pooled investment vehicles are those vehicles where a common portfolio is maintained across investors. The profits and losses generated by this portfolio are distributed amongst the investors based on their proportionate ownership / economic interest in the fund. For the purpose of independently verifying that the pooled vehicle has a common portfolio across investors with no segregation, DDPs/ Custodians shall rely on documents like Prospectus / PPM / offering documents lodged by the FPI with its regulator, and not mere declaration by the FPI.

A list of regulated pool structures from various jurisdictions along with the names of regulators and relevant web – links is provided in Annexure D.

• Pooled investment vehicles registered with/ regulated by a Government / regulatory authority in their home jurisdiction / country of incorporation/ establishment / formation, shall be exempted from making the additional disclosures in case:
• their equity holding in an Indian corporate group is below 25% of their overall global AUM at a scheme level in case of FPIs falling under Para 7(a) of the August 24 SEBI circular; or
• their equity AUM in the Indian markets is below 50% of their overall global AUM at a scheme level, in case of FPIs falling under Para 7 (b) of the August 24 SEBI circular.
• Exchange Traded Funds (ETFs) with less than  50%  exposure  to  India  and India-related   equity   securities) and Entities listed on specified Exchanges of the permissible jurisdictions:
• To start with, the list of permissible jurisdictions and exchanges mentioned below           (based on Annexure A to the SEBI circular SEBI/HO/MRD2/DCAP/CIR/P/2019/146 dated November 28, 2019)  shall be considered as permissible exchanges and jurisdictions for the purpose of Paras 3.3.6.
• United States of America - NASDAQ, NYSE
• Japan - Tokyo Stock Exchange
• South Korea - Korea Exchange Inc.
• United Kingdom excluding British Overseas Territories- London Stock Exchange
• France - Euronext Paris
• Germany - Frankfurt Stock Exchange
• Canada - Toronto Stock Exchange
• International Financial Services Centre in India - India International Exchange, NSE International Exchange
• To independently verify that the Indian equity AUM of the FPI is below 25% / 50% of the global AUM or that the ETF has less than 50% exposure to India and India – related equity securities,  the DDP may rely on disclosure of global AUM through various means such as:

1. Regulatory filings available on websites of respective regulators or in filing systems administered / operated / sponsored by such regulators / registrars.
2. Fact Sheets, holding statements, annual / quarterly reports etc. available on the website of the FPI or its group or its investment manager / trust bank / trustee, provided these entities are regulated/ registered.

• Information available in databases and platforms such as Bloomberg, Thomson Reuters, Refinitiv, Morning Star, Allfunds and other platforms collectively agreed upon by DDPs/ Custodians.

1. Copy of the most recent disclosures, duly certified/ attested by people authorized to do so, as per SEBI’s Master Circular for FPIs and DDPs (as amended from time to time), in case such information is not freely available in public domain
2. Statement containing global AUM provided by the Global Custodians / Trust Banks / / Regulated Fund Administrator who is responsible for calculation of Net Assets Value.

Notes:

1. The validation of the global AUM figures shall be done by the DDP/ Custodians at least on a half – yearly basis.
2. Where information as per points (i), (ii) and (iii) of 3.3.7, are relied upon, the DDP should rely on latest available annual / semi-annual / quarterly / monthly report. The report relied upon should not be more than 12 months old.
3. Where reliance is placed on account statement as specified in point (v) above, such account statement shall not be more than 3 months old.
4. Where Global AUM is considered for a comparative review, the same should be of the sub fund / class / underlying scheme / portfolio, which has sought the FPI registration and should not be at Umbrella level or group level or higher level.

• FPIs that are unable to liquidate their excess investments due to statutory restrictions (such as lock-in restrictions of anchor investors in IPOs, moratoriums, freeze on accounts or shares due to regulatory orders, etc.), till the time such restrictions exist:. The equity securities of such FPIs that are subject to statutory lock–in shall be exempted from immediate disposal even if the applicable threshold is exceeded; however, the FPI may dispose of other equity securities belonging to the same corporate group (in case more than 50% equity AUM in single Indian corporate group) or all other equity securities ((in case more than INR 25,000 crore in Indian equity markets) for realigning with the applicable thresholds. .Once the statutory restriction is lifted, the FPI may dispose of such securities as well. The realignment period of 10 trading days/ 90 calendar days, as applicable, would commence from the date of expiry of the statutory restriction.

• FPIs which are in the process of winding down their investment and that have intimated to their DDP their intention to surrender their FPI registration: Such FPIs shall be required to bring down their holdings to ‘nil’ within 180 calendar days from the date of receipt of such intimation for surrender. During this period, account of such FPIs would be blocked for any fresh purchases. Failure to surrender the FPI registration within the aforementioned 180 calendar days shall render such FPIs liable for regulatory action as stipulated by SEBI. DDPs would report such FPIs to SEBI post completion of 180 calendar days, for further action by SEBI.
• Newly registered FPIs (including FPIs who have registered but not commenced equity trading), for the first 90 calendar days from the date of first trade in the equity segment by the FPI in India.
• Where the entity identified on a look through basis in terms of Para 7 of the August 24 SEBI circular, falls under any of the sub - categories specified in Para 8 of the said SEBI circular, further identification of entities having ownership interest, economic interest, or control rights of such an entity on look through basis, shall not be required.
• For any exemption provided in terms of Para 3.3, the DDP/ Custodian shall maintain proper verifiable records evidencing the due diligence carried out and rationale adopted while providing such exemption, which may include verification from regulatory websites/ submissions made by the FPI to/ received by the FPI from regulatory/ Government authorities, duly certified/ attested by authorized officials in terms of the Master Circular for FPIs and DDPs. The DDP/ Custodian shall not rely on mere declarations provided by the FPI.

• Timelines and Monitoring:

• The primary responsibility of ensuring compliance with the August 24 SEBI circular shall rest with the FPI.
• The monitoring shall be carried out based on settled positions at the end of day i.e.T+1 basis or settled basis.
• On exceeding/ breaching the threshold limits prescribed in the SEBI circular, the DDPs / Custodian shall inform the same to the FPIs for necessary action. FPIs should ensure that they do not make any further purchases, as specified in August 24 SEBI circular. Further, the accounts of the FPI shall be blocked in line with the procedure mentioned in the table below.  
• FPIs in breach/ excess of the limits as on 31^st October, 2023 (EOD):
• Existing FPIs, which are in breach of the investment limits as on 31^st October 2023 (EOD), shall be required to bring down such exposure within 90 calendar days i.e. 29^th January, 2024, unless they fall under any of the exempted categories.
• In case any FPI identified under Para 3.4.4.1 is unable to bring down its equity AUM below the prescribed thresholds within the timelines specified above, it shall be required to make the additional disclosures to its DDP within 30 trading days from 29^th January 2024 i.e. by March 11, 2024 (considering only weekends as non – trading days. Actual date may vary based on the holiday calendar published by the stock exchanges from time to time)

• Key Timelines for FPIs holding more than 50% of their Indian equity AUM in a single Indian corporate group post November 01, 2023: Provided below is an illustrative example for the purpose of clarity of process.

*Actual date may vary based on the holiday calendar published by the stock exchanges from time to time

Notes:

1. In the example above, the blocking period of such single corporate group ends on 1st February 2024, however FPI has time till 27th February, 2024 to make disclosures and can make fresh purchases in all securities during Feb 2 – Feb 27, 2024 even if disclosures are not provided.
2. During the blocking / cooling period for fresh purchases, FPIs would not be allowed to participate in any Voluntary Corporate Actions, such as Rights Issues, which lead to an increase in their equity shareholding in the companies belonging to the corporate group in which the FPI had exceeded the prescribed threshold. However, any credit of any involuntary corporate actions will be allowed. Similarly, during the blocking/ cooling period, FPI will not be allowed to participate in primary offers like IPOs, FPOs, QIPs etc. in the relevant corporate group (Exchanges/ Depositories to update corporate groups for such primary offers).
3. The aforementioned principle would also apply during the liquidation period; however, the scope of such action would be applicable to all equity investments by the FPI.

• Key Timelines for FPIs, that individually, or along with their investor group, hold more than INR 25,000 crore of equity AUM in the Indian markets post November 01, 2023: Since data of FPIs forming part of investor group is available with the Depositories, daily monitoring of equity holdings of FPI or FPI investor groups with INR 25,000 crore limit shall rest with the Depositories. Provided below is an illustrative example for the purpose of clarity of process:

Notes:

1. FPIs investing only in non-equity securities shall be excluded from such monitoring and additional Before marking the non - equity oriented FPI as exempt from the additional disclosures, the DDP shall verify that such FPI does not have any equity holding as on date, block the account for fresh equity purchase and obtain the following declaration from the FPI:

‘We understand that our FPI group is currently breaching the INR 25000 crore limits as prescribed in the SEBI circular no. SEBI/HO/AFD/AFD - PoD - 2/CIR/P/2023/148 dated 24 August 2023. In this regard, we declare that we do not intend to undertake any trade in equities in the Indian securities market. and agree for our account to be blocked for equity purchase so that we may be exempted from providing additional granular disclosures as per the said circular. 

We further undertake and understand, that in the event we choose to trade in Equities, we shall inform the same to our DDP/ Custodian beforehand so that the account can be unblocked for fresh equity purchases. Thereafter, we shall be obligated to comply with the requirements and timelines mentioned in the aforementioned SEBI circular, including granular disclosure requirement, as applicable on the FPI investor group of whom we are a part.’

As stated in the declaration, before taking any fresh equity position, the FPI shall inform the same to the DDP/ Custodian for unblocking its account post, which, the DDP shall unblock the account and forthwith, included such FPIs for the purpose of monitoring and additional disclosures. The requirements applicable on the FPI investor group shall become applicable on the FPI from the date the FPI expresses its desire to starts trading in the equity segment. For instance, in case the FPI investor group is in the mandatory disclosure period on the date, the FPI expresses its desire to starts trading in the equity segment; such FPI shall also be required to make the disclosures during the mandatory disclosure period applicable for the FPI investor group.  

2. During the realignment period, FPIs would not be allowed to participate in any voluntary Corporate Actions such as Rights Issues, which lead to an increase in their equity shareholding. However, any credit of any involuntary corporate actions will be allowed. Similarly, during the realignment period, FPI will not be allowed to participate in primary offers like IPOs, FPOs, QIPs etc.

• Timelines for implementation of FPIs who are in the process of winding down their investment as stated in Para 8 (g) of the August 24 SEBI circular are illustrated through the example mentioned below:

• General Terms
• Indian Equity Assets Under Management (AUM): In order to measure FPIs exposure to the equity market in India, equity AUM would refer to total market value of listed equity shares held by FPIs in Indian securities market on a fully diluted basis, adopting the same methodology used for validating conformance with the 10% FPI investment limit. Exchanges/ Depositories shall make available adequate information in this regard to the DDPs/ Custodians.

• For calculating equity AUM, last closing / traded / available price of such equity shares from any recognized stock exchange(s) in India should be considered. The valuation shall be carried out based on settled position and the pricing consideration as defined above.

• Overall Global AUM: Represents total value of assets (such as stocks, bonds, and others investments) that is invested by the FPI globally.
• For the breach of limit for INR 25,000 crores, the Depositories shall monitor the limits on an ongoing basis and provide reports to DDP / Custodians on daily basis for non exempted FPIs for them to take necessary action. Upon rectification of the breach, Depositories shall immediately inform the same to the concerned DDPs / Custodians for unblocking the accounts of such FPIs for further equity purchases. DDP/ Custodian shall inform the same to the FPI.
• DDPs/ Custodians will inform Depositories about any change in the status of exempted FPIs as and when assessed. Depository shall only consider the holding of FPIs for monitoring, which are non-exempted based on the reporting done by the DDPs/ Custodians.
• The Depository shall develop system to monitor equity investments of all FPIs to identify FPIs breaching the INR 25,000 crore equity AUM threshold. Alerts may be sent by Depositories to the DDPs/ Custodians once the FPI investor group equity AUM exceeds (i) INR 23,000 crore; (ii) INR 24,000 crore and (iii) INR 25,000 crore, so that the DDPs/ Custodians may initiate the process of identifying whether the FPI qualifies for any exemption well in advance.
• Depositories shall facilitate uploading of additional disclosures on the FPI registration portal or such other platform / system by the Custodian / DDP / FPI. In the interim, till depository system is developed, the additional disclosures (as per Annexure A in an excel format) shall be submitted to DDP/ Custodians, via email, by FPI.
• For monitoring compliance with the 50% exposure limit in a SCG, a repository containing names of companies forming a part of each Indian corporate group shall be publicly disseminated on the websites of Stock Exchanges / Depositories, in excel/ csv format.
• To facilitate Custodian / DDP/ DP of the FPI for blocking the account at ISIN / SCG and account level, Depositories are required to introduce new Freeze reason codes in their depository system to adequately capture the reason for blocking of account of the FPI for credit/ debit by the DDP/ Custodian, such as FPI exceeding the threshold mentioned in SEBI circular no. 148 dated August 24, 2023, Non – submission of disclosures by FPI as required vide SEBI circular no. 148 dated August 24, 2023’.
• In terms of Regulation 22 (1) (c) of the SEBI (FPI) Regulations, 2019, read with Para 14 of the SEBI Master Circular for FPIs and DDPs dated December 19, 2023 only an entry or exit of any person/ entity having ownership, economic interest or control in the FPI, directly or indirectly, would be considered a material change and necessitate revised reporting as per existing prescribed format. Any change of shareholding of existing person having ownership, economic interest or control in the FPI, directly or indirectly, will not be considered as a material change and will not trigger any revised reporting.
• Any changes to the exemption status of the entity, where exemption is claimed from further granular disclosure, will be considered material changes and FPIs must ensure that revised reporting is completed.
• After realignment, in case the FPI’s holdings exceed the prescribed threshold on a subsequent date, the timeline for FPI to realign with the limits shall restart from such subsequent date.
• Further, in case the FPI that have already provided the granular disclosure in the past, and there is no change in any detail submitted earlier through Tables 1 and 2 of Annexure A, such FPIs may confirm that there is “No change in any detail submitted in Table 1 and Table 2 of Annexure A regarding the additional disclosure information provided vide communication/ email dated _____________) on any subsequent breach. The custodian / DDP may rely upon such confirmation to update the record.
• Validity of Exemptions: Custodians / DDPs shall be responsible to communicate the exemption details to the Depositories:
• Permanent Exemptions: FPIs that have been identified as exempt shall continue to be considered as exempt by the Depositories till such time the DDP / Custodians approach them for a change in exemption status
• Temporary Exemptions: In cases where FPIs seek exemption on account of the Indian exposure being less less than 25%/ 50% of global AUM categories, Depositories shall exclude the FPI(s) from the exemption list as soon as the validity period of such review expires.
• All existing FPIs shall affirm and acknowledge to their DDP, that they understand and agree to abide by the new rules and consequences thereof as described herein under, within 90 calendar days from 01 November 2023. New FPIs shall provide the same at the time of registration. DDP can rely on email acknowledgement from compliance officer of FPIs already captured in records. Non-receipt of response from existing FPIs by due date shall be reported to SEBI for appropriate action.

Government and Government related investors registered under Regulation 5 (a) (i) of the FPI Regulations are exempted from providing such acknowledgment

• If the FPI re-aligns their portfolio after providing the initial granular information and becomes non-reportable entity (by virtue of reducing its 50% concentration or INR 25,000 crore thresholds), then material change reporting shall be applicable only as per PMLA thresholds/ SEBI guidelines, and not at granular level
• Voting Right Control Process:
  • On the starting date of liquidation period as per tables 3.4.5 and 3.4.6 above, DDP/ Custodian shall inform the respective Depository where the FPI holds the demat account that the FPI’s registration has been rendered invalid due to non – submission of additional disclosures by the end of the mandatory disclosure period.
• Depository will, thereafter, inform the listed Investee company/ its Share Transfer Agent/ Electronic Voting Service Provider to restrict the FPIs voting rights in the company to its actual shareholding or shareholding corresponding to 50% of its equity AUM in the company as on the starting date of liquidation period.
• Illustrative example: In respect of Table at Para 3.4, suppose FPI XYZ has 60 shares of Company A and 40 shares of Company B as on May 13, 2024, and the FPI fails to make the additional disclosures, thereby rendering its PFI registration invalid from May 13, 2024. Thereafter, FPI’s voting rights shall be restricted to shareholding corresponding to 30 shares of Company A and 20 shares of Company B.

Suppose as on July 01, 2023, the FPI has liquidated some shares and holds 15 shares of Company A and 30 shares of Company B. As on this date, the FPI will be able to exercise voting rights corresponding to 15 shares of Company A but only 20 shares of Company B (maximum permissible voting rights in Company A). 

Disclosure of encumbered shares
The promoter of every target company shall disclose details of shares in such target company encumbered by him or by persons acting in concert. The promoter of every target company shall disclose details of any invocation of such encumbrance or release of such encumbrance of shares.

The disclosures as per the specified format should be made within seven working days from the creation or invocation or release of encumbrance, as the case may be to:

1. every stock exchange where the shares of the target company are listed; and
2. the target company at its registered office

Open Offer
If an acquirer (together with persons acting in concert) acquires 25 percent or more shares or voting rights in a target company, the acquirer is required to make an open offer to acquire additional 26 percent shares from the public.

If an acquirer (together with persons acting in concert), acquires and holds 25 percent or more shares or voting rights in a target company but less than the maximum permissible non-public shareholding, is required to make an open offer for acquiring 26 per cent shares of such target company if they acquire more than 5 per cent shares or voting rights within any financial year.

Provided that such acquirer shall not acquire or enter into any agreement to acquire shares or voting rights exceeding the maximum permissible non-public shareholding.

For purposes of determining the quantum of acquisition of additional voting rights under this sub-regulation:

1. gross acquisitions alone shall be taken into account regardless of any intermittent fall in shareholding or voting rights whether owing to disposal of shares held or dilution of voting rights owing to fresh issue of shares by the target company
2. in the case of acquisition of shares by way of issue of new shares by the target company or where the target company has made an issue of new shares in any given financial year, the difference between the pre-allotment and the post-allotment percentage voting rights shall be regarded as the quantum of additional acquisition.

Acquisition of shares by any person, such that the individual shareholding of such person acquiring shares exceeds the stipulated thresholds, shall also be attracting the obligation to make an open offer for acquiring shares of the target company irrespective of whether there is a change in the aggregate shareholding with persons acting in concert.

Acquisition of control

Irrespective of acquisition or holding of shares or voting rights in a target company, no acquirer shall acquire, directly or indirectly, control over such target company unless the acquirer makes a public announcement of an open offer for acquiring shares of such target company.

Indirect acquisition of shares or control
An indirect acquisition of shares or voting rights requiring an open offer would be considered as direct acquisition, for pricing, timing of open offer and other compliances/ requirements of open offer, where the proportionate net assets or sales turnover or market capitalization of the target company as a percentage of the consolidated net asset or sales turnover or the enterprise value for the entity or business being acquired is in excess of 80 per cent on the basis of the most recent audited annual financial statements

Voluntary Offer.

An acquirer (together with persons acting in concert), holds shares or voting rights in a target company entitling them to exercise 25 per cent or more but less than the maximum permissible non-public shareholding, can voluntarily make a public announcement of an open offer for acquiring shares subject to their aggregate shareholding after completion of the open offer not exceeding the maximum permissible non-public shareholding.

An acquirer or any person acting in concert cannot voluntarily make an open offer if he has acquired shares of the target company in the preceding 52 weeks without attracting the obligation to make a public announcement of an open offer. Further, during the offer period such acquirer cannot acquire any shares otherwise than under the open offer.

An acquirer (together with persons acting in concert), who made an offer to acquire shares of a target company cannot acquire any shares of the target company for a period of six months after completion of the open offer except pursuant to another voluntary open offer: Provided that such restriction shall not prohibit the acquirer from making a competing offer upon any other person making an open offer for acquiring shares of the target company.

Exchanges have instituted buy-in (auction) procedures that will kick in where a delivering member does not meet obligations. The exchange conducts auctions to acquire shortages from the market i.e it purchases the required quantity (the short delivery) from the market and delivers them to the original buying member. The buy-in schedules for T+1 settlement is as under:

In case the exchange is unable to procure the required quantity of shares through the buy-in, the deal is closed out by paying the purchaser cash in lieu of the securities. In case the auction price is higher than the valuation price, the difference is debited to the account of clearing member delivering short. In cases where the valuation price exceeds the auction price, the excess is not returned to the party at fault for the short delivery. Such excesses are credited to the “Investor Protection Fund” maintained by the Exchange.

Close-out: Where an auction does not deliver the quantity necessary to meet the shortage, the Exchanges close such shortages out, and deliver cash to the member receiving short (by a compensating debit to the member delivering short). The close-out price is the higher of:

• The highest price for the security recorded on the Exchange from the trade date till the date of auction

AND

• Twenty percent above the closing price on the date of auction

Penalty for Short Delivery: Besides incurring the cost involved in acquiring shares through the buy-in (or close-out), the defaulting delivering member is penalised. On the BSE & NSE, this penalty amounts to 0.05% per day of the contracted settlement value of the shortage.

Securities lending and borrowing (SLB) in India follows an exchange centric model where SLB transactions take place on screen-based trading platforms similar to those in cash / equity segment. The trading platforms are maintained by stock exchanges with their clearing corporation / house acting as central counter-party to all SLB transactions. The trading is anonymous i.e. the lender or borrower's identity is not disclosed to the counterparty. Salient features of the SLB model are:

• Exchange traded product: automated, screen based, order-matching platform.
• Clearing corporation / house of stock exchanges to act as central counter party to every SLB trade and to guarantee settlement of the same.
• Participant brokers to execute SLB trades on instruction from clients.
• Trading platform to be available from 09:15 to 15:30 (IST).
• SLB order matching on lending fee – time priority.
• custodian to undertake clearing and settlement of SLB trade on behalf of clients.
• Permitted in only those securities where derivative trading has been permitted.
• Effective 1 January 2018, contracts of different tenures ranging from 1 day to 12 months based on the need of the market participants will be available.
• Early recall / repayment facility offered to investors.
• The first leg of SLB transactions will settle on T+1 basis (T being the day of executed SLB trade on the exchange platform).
• The tenure of lending / borrowing will be up to a maximum period of 12 months.
• There would be market wide and client level position limits.
• No lending/borrowing activity during the periods of corporate action in the security, other than stock split and dividend. All transactions in case of corporate actions other than dividend and Stock spilt will be foreclosed on ex-date.
• In case of stock split, the position of the borrower would be proportionately adjusted and the lender will receive the revised quantity on the reverse leg settlement date.
• In case of dividend, the dividend amount would be worked out and recovered from the borrower on the book closure/ record date and passed on to the lender
• Margins payable by lenders / borrowers.
• FPIs allowed to place only cash as margin / collateral.
• FPIs are permitted to borrow securities only to meet their obligations arising out of short sell.

Eligible Securities
Securities available for trading in the derivatives segment are permitted for trading in SLB segment as well as scrips that fulfil the following conditions are also eligible:

1. Scrip classified as 'Group I security' where the trading frequency over the previous six months takes places at least 80 per cent of the days and the impact close (over the previous six months) is less than or equal to one per cent. AND
2. The Market Wide Position Limit (MWPL) of the scrip is not less than INR 1 billion; AND
3. The average monthly trading turnover in the scrip in the cash market is not less than INR 1 billion in the previous six months.

Stock exchanges are required to review the scrips eligible for SLB on a half-yearly basis. If any scrip fails to meet the eligibility criteria, no new SLB transaction shall be allowed in the scrip from the next trading day. However, the existing contracts in such scrips shall be allowed to continue till expiry.

In case of record date or closure of register of a company in any of the eligible security, such security will not be available for lending and borrowing for a period starting 7 days prior to record / closure date to 7 days after the record / closure date. SLB will be permitted in dematerialized form only.

Tenure of SLB transactions extended up to 12 months

• The tenure of lending and borrowing will be ranging from 1 day up to a maximum period of 12 months.
• The transactions will be based on fixed monthly tenures with specified reverse leg settlement dates and the tenure ranging from 1 day up to 12 months.
• The reverse leg settlement date will be the first Thursday of the respective month. If the first Thursday is not a working day then the reverse leg settlement will happen on the next working day.
• The reverse leg settlement dates and the available tenures will be announced by NSE Clearing from time to time.

Early Recall / Repayment 
The lender / borrower of securities is provided the facility to make an early recall / repayment of shares. 

The contract can thus be closed before the expiry of the contract. 

In case of an early recall by the lender:

• The Approved Intermediary (AI) will try to borrow the security for the balance period on a best effort basis and will pass it on to the lender.
• The AI will collect the lending fee from the lender who has sought early recall.
• The original contract between the lender and the AI will exist till the contract with the new lender for the balance period is executed and the securities are returned to the original lender.

In case of an early repayment by a borrower:

• The margins will be released immediately when the securities are returned by the borrower.
• The AI will try to onward lend the securities on a best effort basis and will pass on the income arising out of the same to the borrower.
• The original borrower will have to forego lending fee for the balance period if the AI is unable to find a new borrower for the balance period.
• In case of early recall / early repayment of shares, the lending fee for the balance period will be determined at the prevailing market rate

Clearing and Settlement
The first leg of transactions will be settled on T+1 on a gross basis across all series including early recall or repayment transactions. In case of early recall or repayment transaction, the existing position for which early recall or repayment transaction has been executed will cease to exist on successful completion of the first leg settlement of the transaction.

The reverse leg settlement will be conducted on the reverse leg settlement date of the respective series. Clients who have a borrow position must return the securities on the reverse leg settlement date. In the case of repayment of securities not being further lent, the shares will be automatically used towards a pay-in on the respective reverse leg settlement date.

A typical settlement cycle for a lending and borrowing transaction shall be as under:

Trade Date

• SLB transaction session - 09:15 – 15:30
  • Custodial confirmation of SLB trades on behalf of clients - 18:00(EPI for lend transaction - 18:00)
    • Final obligation to Custodian/DDP - 19:00

Trade date +1

• Pay-in of securities / funds first leg - 09:30
  • Pay- out of securities / funds first leg - 11:30

Reverse leg

• Pay-in of securities of reverse leg - 09:30
  • Pay-out of securities / funds of reverse leg - 11:30
    • Buy-in auction for failure of borrower to return securities - 12:00
      • Auction obligation to Participant - 16:30

Reverse leg + 1

• Pay-in of securities for auction settlement - 09:30
  • Pay-out of securities/funds for auction settlement - 11.30

In case securities are not bought through the buy-in auction, the trade will be closed-out. The computation methodology and rate of close-out shall be intimated by the exchanges from time to time.

Treatment for corporate actions
In case of any corporate actions during the tenure of lending/borrowing the following procedure would be followed depending upon the type of corporate actions. 

Dividend: The dividend amount would be worked out and recovered from the borrower on the book closure/ record date and passed on to the lender. 

Stock split: The positions of the borrower would be proportionately adjusted so that the lender receives the revised quantity of shares 

Other corporate actions such as bonus/ merger/ amalgamation / open offer, etc: The contacts would be foreclosed on the Ex-date. The lending fee would be recovered on a pro-rata basis from the lender and returned to the borrower. 

Annual General Meeting (AGM) / Extraordinary General Meeting (EGM): In the event of the corporate actions which is in nature of AGM/EGM, presently the AIs are mandatorily foreclosing the contracts. It has been represented by market participants that mandatory foreclosure during the life of the contract may not be necessary as, all lenders may not be interested in taking part in the AGM/EGM. It has therefore been decided that the AIs shall provide the following facilities to the market participants:

1. Contracts which shall continue to be mandatorily foreclosed in the event of AGM/EGM
2. Contracts which shall not be foreclosed in the event of AGM/EGM

Foreclosure of Transactions 
Transactions in securities where there is a corporate action of other than dividend and stock split shall be foreclosed on ex date. 

The lending fees for the balance period shall be collected on pro rata basis from the lenders based on the lending fees received by them. The amount so collected shall be passed on to the borrowers in the ratio of their contribution to the pro rata lending fees receivable by them based on the lending fees paid by them. 

In case of foreclosure of transactions, NSE Clearing shall specify the settlement schedule for the purpose of pay-in/pay-out of transactions from time to time.

Introduction of roll-over facility
Any lender or borrower who wishes to extend an existing lent or borrow position shall be permitted to roll-over such positions i.e. a lender who is due to receive securities in the pay out of an SLB session, may extend the period of lending. Similarly, a borrower who has to return borrowed securities in the pay-in of an SLB session, may, through the same SLB session, extend the period of borrowing. The roll-over shall be conducted as part of the SLB session. SEBI has notified following modifications to rollover facility (effective 01 January 2018):

a) Any lender or borrower who wishes to extend an existing lent or borrow position shall be permitted to roll-over such positions i.e. a lender who is due to receive securities in the pay out of an SLB session, may extend the period of lending. Similarly, a borrower who has to return borrowed securities in the pay-in of an SLB session, may, through the same SLB session, extend the period of borrowing. The roll-over shall be conducted as part of the SLB session

1. b) The total duration of the contract after taking into account rollovers shall not exceed 12 months from the date of the original contract. It is clarified that multiple rollovers of a contract by the lender or borrower is permitted.

c) Rollover shall not permit netting of counter positions, i.e. netting between the ‘borrowed’ and ‘lent’

Shortages and close out rate
If a lender fails to deliver the security, the transaction will be closed out at the highest price: 
25 per cent of the closing price of the security on T+1 day or 
(Maximum trade price of the security in the capital market segment of NSE from T to T+1 day) - (T+1 day closing price of the security in cash market segment)
Failure to deliver the securities will result in a close-out on the reverse leg settlement day with the auction settlement on reverse leg settlement day + 1 with the highest price of: 
Maximum trade price in the cash market segment from reverse leg settlement day – 1 to reverse leg settlement day, or 
25 per cent above the closing price of the security in the capital market segment on the reverse leg settlement day.

Early pay in of shares
First Leg: The early pay-in facility for the first leg settlement will continue as per the existing procedure.
Reverse Leg: Participants who request the release of securities and would not like to further re-lend the shares can transfer the securities in the early repayment account. The NSE Clearing will allocate the securities deposited in the early repayment account towards pay-in on the respective reverse leg settlement date. 

Margins
All transactions under SLB scheme will be subject to levy of margins. The margins will be levied at a client level and collected on an upfront basis from participant-broker. Once SLB trades are confirmed by custodian/DDP of the investors, margin requirement shifts from broker to the custodian. custodian in turn are required to collect margin from their clients. The details in respect of margins are in the Settlement Procedures section. In case of early repayment requests, no margins will be levied to the participant. For early recall transactions the lending fee will be levied as up front margins. If the borrower fails to meet the margin obligations, the NSE Clearing will obtain the securities and square off the position of such defaulting borrower, failing which there will be a financial close-out.

Margin requirement on trade date:

After successful settlement on T+1, all margins levied on the lender and borrower on “T” as per the above table will be released by the clearing house. 

Margin requirement from T+1 to reverse leg

Early recall - 100% of the lending fee
Early repayment - no margin

NSE Clearing and ICCL maintains Core Settlement Guarantee Fund (Core SGF).

NSE Clearing and ICCL act as a central counterparty to every transaction executed on NSE and BSE respectively. The Settlement Guarantee funds enable settlement of trades in case members fail to honour their obligations.

The CCIL act as a central counterparty to every transaction in Government securities settled through the NDS.

RBI has prescribed anti-money laundering measures for banks,financial institutions and intermediaries operating in India under aegis of Prevention of Money Laundering Act, 2002.

SEBI has mandated all market participants to adopt AML guidelines as per the Prevention of Money Laundering Act (PMLA) 2002. The guidelines, inter-alia, require the intermediaries to appoint of a principal officer and intimate the details to FIU (Financial Intelligence Unit). The principal officer is required to ensure compliance of PMLA 2002, which includes monitoring and reporting of Suspicious Transactions to FIU.

On September 2013, the Government of India notified amendments to the PMLA rules which gave powers to a regulator to prescribe enhanced or simplified measures to verify the client's identity taking into consideration the type of client, business relationship, nature and value of transactions based on the overall money laundering and terrorist financing risks involved. Further to this, SEBI prescribed KYC requirements applicable to eligible foreign investors under the Portfolio Investment Scheme route. Subsequently, RBI considered simplified norms for opening bank accounts for foreign investors and notified simplified KYC norms for FPIs.

This is an FPI market. Please contact your RBC Investor Services' Client Manager before making portfolio investments.

Foreign Portfolio Investors (FPI)
SEBI has notified new FPI Regulations 2019 on 23 September 2019. With this the erstwhile SEBI (FPI) Regulations, 2014 stand repealed and the circulars, FAQs and other guidance issued by SEBI stand rescinded. SEBI has also issued revised operating guidelines for FPIs and designated depository participants (DDPs).

An FPI has to obtain a certificate of registration prior to buying, selling or otherwise dealing in securities. The certificate of registration is granted by a DDP on behalf of SEBI.



As defined in the SEBI (FPI) Regulations, 2019, a FPI means a resident in a country other than India, whose securities market regulator is a signatory to IOSCOs MMOU (Appendix A Signatories) or a signatory to a bilateral MOU with SEBI. In case of a Bank, it should be resident of a country whose central bank is a member of the Bank for International Settlements (BIS).
The person should not be resident in a country listed in the public statements issued by FATF (high risk and non-compliant countries) from time to time on

1. jurisdictions having a strategic Anti-Money Laundering/ Combating the Financing of Terrorism (AML/CFT) deficiencies to which counter measures apply or
2. jurisdictions that have not made sufficient progress in addressing the deficiencies or have not committed to an action plan developed with the FATF to address the deficiencies.

As per SEBI press release dated February 25, 2020, when a jurisdiction is placed under increased monitoring, it construes that the country has committed to resolve swiftly the identified strategic deficiencies within agreed timeframes and is subject to increased monitoring. FATF does not call for enhanced due diligence to be applied to these jurisdictions but encourages its members to take into account this information in their risk analysis. FPIs from these jurisdictions can continue undertaking their investments in India but may be subject to increased monitoring.

Foreign portfolio investors have to register with a DDP before they can invest in the Indian securities market.

The following categories of investors are eligible as FPIs:
Category I

1. Foreign Governments and Government related investors such as central banks, Governmental agencies, sovereign wealth funds, international or multilateral organizations or agencies; including entities controlled or at least 75% directly or indirectly owned by such Government and Government related investors
2. Pension funds and university funds
3. Appropriately regulated entities such as Insurance / reinsurance companies, Banks, asset management companies, investment managers/advisors, portfolio managers, broker dealers and swap dealers
4. Entities incorporated in Financial Action Task Force (FATF) member countries which are appropriately regulated funds, unregulated funds whose sponsoring Investment Manager (IM) is appropriately regulated and is registered as a Category I FPI, and university related endowments which are in existence for more than five years
5. Entities located in non-FATF member countries would be eligible provided the country / jurisdiction should be specified for this purpose by Government of India, by an order or agreement / treaty with other sovereign government.
6. An entity (A) whose investment manager is from the FATF member country and such an investment manager is registered as a Category I FPI or (B) which is at least 75 per cent owned, directly or indirectly by another entity which is from FATF member country and is eligible under any of the point b, c or d above

Category II

1. Appropriately regulated funds not eligible as Category I FPI
2. Endowments and foundations
3. Charitable organisations
4. Corporate bodies
5. Family offices
6. Individuals
7. Appropriately regulated entities investing on behalf of their client, in accordance with conditions specified by SEBI from time to time;
8. Unregulated funds in the form of limited partnership and trusts

Re-categorization of existing FPIs:

      In accordance with the SEBI (FPI) Regulations, 2019, existing FPIs are re-categorized as under:

Any FPI wanting to be re-categorized from Category II FPI to Category I, cab request to DDP along with requisite information, documents and payment of applicable fees.

An FPI has to obtain a certificate of registration from a DDP who will grant registration on behalf of SEBI.

An application for the grant of certificate as FPI must be made to the DDP in Form A as provided in the SEBI FPI regulations, 2019 and must be accompanied by the applicable fee and supporting documents as prescribed under the regulations for each investor category such as PCC/ MCV Declarations and Undertakings as required under the regulations.
In case the applicant is a bank or its subsidiary, the DDP will forward the relevant details of the applicant to SEBI who would in turn request RBI to provide its comments. Based on the comments received from RBI, SEBI would intimate the comments of RBI to the DDP accordingly.

Registration Fees for every block of 3 years

1. Category I - 3 000 USD (International or multilateral agencies are exempted from payment of registration fees)
   1. GST @ 18%: 540 USD
   2. Payment: 3 540 USD

2. Category II - 300 USD
   1. GST @ 18%: 54 USD
   2. Payment: 354 USD

The FPI accounts could be opened anytime during the validity of the FPI registration.

FPIs who wish to continue with their registration for the next block of three years, should pay the fees to their DDPs and inform change in information, if any, as submitted earlier.

Applications for renewal of the approval along with the additional information, if any and supporting documents must be made prior to the expiry of the existing approval, at least 15 days before the expiry of the registration.

When granting FPI registration, a DDP takes into account various factors, some of which are: 

The applicant is a resident of a country whose securities market regulator is a signatory to IOSCOs MMOU (Appendix A Signatories) or a signatory to bilateral MoU with SEBI;

• If the applicant is a bank, the applicant should be a resident of a country whose central bank is a member of BIS; In case applicant is central bank then it need not be a member of BIS
• the applicant should not be resident in a country identified in the public statement of FATF as: (i) a jurisdiction having a strategic AML/ CFT deficiency to which counter measures apply; or (ii) a jurisdiction that has not made sufficient progress in addressing the deficiencies or has not committed to an action plan developed with the FATF to address the deficiencies
• The applicant is a person not resident in India or Non-resident Indian or Overseas Citizen of India
• The applicant is legally permitted to invest in securities outside the country of its incorporation or establishment or place of business
• The applicant is authorized by its Memorandum of Association and Articles of Association or equivalent document(s) or the agreement to invest on its own behalf or on behalf of its clients;
• The applicant has sufficient experience, good track record, is professionally competent, financially sound and has a generally good reputation of fairness and integrity;
• The grant of certificate to the applicant is in the interest of the development of the securities market;
• The applicant is a fit and proper person based on the criteria specified in Schedule II of the SEBI (Intermediaries) Regulations, 2008; and
• Any other criteria specified by the SEBI and/ or the DDP from time to time.

Financial Action Task Force (FATF) has included Cayman Islands under the ‘Jurisdictions with strategic deficiencies’. Enhanced KYC monitoring is encouraged for FPI applications from this jurisdiction.

Foreign investors have to open separate types of accounts in India for different asset holdings:
- FPI for holding investments under the Portfolio Investment Scheme (PIS)
- ADR/GDR for holding ADR/GDR converted equity shares
- FCCB for holding Foreign Currency Convertible Bond (FCCB) converted equity shares
- FDI for holding strategic equity investments
- FVCI for holding investments under venture capital route in green field investments
- VRR for holding investments via Voluntary Retention Route

FDI, FVCI and VRR require special processing that needs to be agreed first with RBC Investor Services before investment and account opening. FVCI also requires registration with SEBI under the SEBI (FVCI) regulations.

FPIs are also required to obtain and submit a Permanent Account Number (PAN) card. Accounts on the depository (National Securities Depository Limited and / or Central Depository Services (India) Limited) will be opened only after receipt of the PAN card and verification of the same with the Income Tax web site.

Local regulations require appointment of tax consultants to make tax payments prior to repatriation of sale proceeds. The tax consultant will compute profit and loss and file tax returns on behalf of the investor. Filing of Tax returns and payment of taxes require quoting of the PAN.

The local subcustodian/DDP also applies for the following codes on behalf of the FPI:

UCC (Unique Client code)
This is the unique client code, which is allotted by the National Stock Exchange at the investing entity level. It is required by all SEBI registered FPIs investing in the market. This code is used by brokers while transmitting electronic contract notes to custodian/DDP. Subcustodian/DDP applies for the UCC on NSE portal after receipt of the FPI registration and the PAN card. For applications submitted online before 12:00noon, NSE allots UCC on the same day.

Common Custodian Participant Code (formerly known as NSE Code)
This is the client code required by brokers at the time the trade is being input on the exchange system for clearing house trades. The code is allocated by the National Stock Exchange and is usually issued on the same day or next day.


Derivatives Clearing Code
This code is used for trades executed on the Future and Options (F & O) segment. The client's appointed Clearing Member notifies the relevant stock exchange of the Custodian/DDP Participant code, which the Stock Exchanges will register for the investor's trading purposes on the F&O segment. Only applied by the subcustodian/DDP if they are the clearing member.

SLB Clearing Code
This code is used for clearing of trades executed in the SLB segment. The investor's custodian/DDP/ clearing member notifies the relevant stock exchange of the investor's cash market CP code of the exchange, which the stock exchange will activate on the SLB segment as well.

Registration on CORE
The registration is mandatory for clients who intends to trade in government securities. Registration allows reporting and clearing/settlement of client trades on NDS OM platform. The Subcustodian/DDP applies for this registration on portal operated by Clearing Corporation of India Ltd (CCIL). Registration requests submitted before 12:00noon are completed by CCIL on the same day.

KYC verification for mutual fund investment
FPIs / sub accounts who invest in mutual funds are required to comply with Know Your Customer (KYC) norms under the SEBI Prevention of Money Laundering Act 2002 (PMLA). In order to complete the KYC verification the following documents have to be submitted:

• SEBI Registration Certificate.
• Power of Attorney along with an authorised signatory list.
• PAN card.

KRA KYC Form
The Securities and Exchange Board of India (SEBI) has notified the SEBI Know Your Client (KYC) Registration Agency Regulations 2011, for KYC registration agencies (KRAs) to undertake KYC for investors in the securities market. Through the KRA regulations, SEBI has introduced a mechanism in the Indian market whereby the initial KYC of a client, including the identification of beneficial ownership is undertaken only once and the client does not have to repeatedly fill up forms and submit documents when it wishes to open an account with another intermediary registered with SEBI. Entities seeking to register themselves as KRA would need to submit an application to SEBI in the format specified in these regulations. The KYC KRA form will be required to be updated for opening of a new depository account opening process.

The purchase of equity shares of each company by a single foreign portfolio investor or an investor group shall be below ten percent of the total paid up capital of the company on fully diluted basis.
Where multiple FPIs belong to the same investor group, the investment limits of all such FPIs shall be clubbed at the investment limit as applicable to a single FPI.

In the event an FPI and its investor group reach 10% or more of the total paid up equity capital of a company on a fully diluted basis, they must follow extant FEMA rules in this regard. The FPIs investing in breach of the prescribed limit shall have the option of divesting their holdings within 5 trading days from the date of settlement of the trades causing the breach. If such FPI and its investor group opt not to divest and wants to treat their entire investment into a company as FDI, such FPI including its investor group shall not make further portfolio investment. Such FPI/ its investor group shall inform respective custodians of the choice who in turn will report this to the SEBI, depositories and the issuer. Such investments shall be treated as FDI subject to norms as prescribed by RBI from time to time and will be marked as FDI in custodian records. However, FPI and its investor group will be able to sell these securities only through the route as they were acquired and appropriate reporting (i.e. LEC reporting) will be made by the respective custodian.

As per the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 notified on 17 October 2019, a person resident outside India may hold foreign investment either as FDI or as FPI in any particular Indian company.

Certain foreign government agencies and their related entities may be exempt from clubbing of investment limits and other investment conditions if the Government of India has entered into a relevant agreement or treaty with the sovereign government, or issued a relevant order.

An aggregate FPI holding in securities of an Indian company is limited to 20% in the case of Public Sector Banks and 24% in case of other companies. The foreign share holding limit can be increased by a company subject to shareholder approval and industry wide maximum foreign shareholdings limits.

The limit for foreign investment in Stock Exchanges, Depositories and Clearing Corporation is 49% under the automatic route:

• FPIs can invest through purchases in the primary as well as secondary market.
• FPIs are not permitted to have representation on the Boards of such companies.
• Restricting level of equity investment to 5% by a foreign investor, either individually or persons acting in concert.
• Following types of foreign investors can invest up to 15% of the equity share capital of recognized stock exchanges in India:
• • FPIs registered with SEBI
  • NRIs
  • Other than (a) and (b) above, a person resident outside India, can acquire capital instruments on stock exchange, subject to the condition that the investor has already acquired and continues to hold the control of such company in accordance with SEBI (Substantial Acquisition of Shares and Takeover) Regulations and subject to conditions specified in Annex I of the Master Direction – Foreign Investment in India.
• The investment limit for foreign investors other than the above types remains unchanged at 5%.
• Investors are required to ensure compliance with SEBI regulations including meeting ‘fit and proper person’ criteria
• No person is allowed to hold more than 2% of the issued and paid-up share capital of a stock exchange/clearing corporation without seeking approval from SEBI within 15 days of such acquisition.

• a foreign stock exchange;
• a foreign depository;
• a foreign banking company;
• an foreign insurance company; and
• a foreign commodity derivatives exchange,

Monitoring foreign investment limits in listed companies:

The onus of compliance with the various foreign investment limits rests on the Indian company receiving such foreign investments. In order to facilitate listed Indian companies to ensure compliance with the various foreign investment limits, SEBI in consultation with RBI, has notified a new framework for monitoring the foreign investment limits. SEBI vide circular no. IMD/FPIC/CIR/P/2018/61 dated 05 April 2018 notified this framework which is operational since 01 June 2018.

The salient features of this framework are as under:

• The system for monitoring the foreign investment limits in listed Indian companies to be implemented and housed at the depositories (NSDL and CDSL)
• A Company has to appoint any one depository as Designated Depository for the purpose of monitoring the foreign investment limit. The depositories provide an interface to the companies to submit following information. Further, companies will have to ensure that in case of any corporate action, the necessary modification is reflected immediately in the Company Master database with the depositories

1. Company Identification Number (CIN)
2. Name
3. Date of incorporation
4. PAN number
5. Applicable Sector
6. Applicable Sectoral Cap
7. Permissible Aggregate Limit for investment by FPIs
8. Permissible Aggregate Limit for investment by NRIs
9. Details of shares held by FPI, NRIs and other foreign investors, on repatriable basis, in demat as well as in physical form
10. Details of indirect foreign investment which are held in both demat and physical form
11. Details of demat accounts of Indian companies making indirect foreign investment in the capital of the company
12. Whether the Indian company that has total foreign investment in it is either not owned and not controlled by resident Indian Citizens or is owned or controlled by person’s resident outside India (Yes or No)
13. ISIN-wise details of the downstream investment in other Indian companies

• Company will inform its designated depository in case of any change in the details such as increase/decrease of the aggregate FPI/NRI limits or the sectoral cap or a change of the sector of the company along with the supporting documentation.
• The data on the paid-up equity capital of company to its Designated Depository will be provided by the stock exchanges. This data will include the paid-up equity capital of the company on a fully diluted basis

Trade Reporting:

• The current reporting requirements by custodians to report confirmed trades of their FPI clients to the depositories on T+1 (T being the trade date) will continue and this data will be the basis of calculating FPI investments/holding in Indian companies. With respect to NRI (repatriable) trades, Authorised Dealer (AD) Banks will report the transactions of their NRI clients to the depositories

Activation of a Red Flag Alert:

• The monitoring of foreign investment limits is based on the paid-up equity capital of the company on a fully-diluted basis
• A red flag is activated when foreign investment reaches within 3% or less than 3% of the aggregate NRI/FPI limits or the sectoral cap
• System calculates the percentage of total FPI holdings/total NRI holdings in the company and the investment headroom available as at the end of the day with respect to the aggregate FPI/NRI investment limit
• The depositories and exchanges display the available investment headroom, in terms of available shares, for all companies for which the red flag has been activated, on their respective websites. Links to depository and exchange websites furnished below:
  NSDL - https://www.fpi.nsdl.co.in/web/Reports/ForeignInvestmentLimitMonitoringListing.aspx
  CDSL - https://www.cdslindia.com/publications/FIMonitoring.aspx
  BSE - https://www.bseindia.com/markets/equity/EQReports/mfi_limits.aspx?expandable=6
  NSE – www.nseindia.com (published daily through circulars)

• Once a red flag is activated for a given scrip, foreign investors will need to take a conscious decision to trade in the shares of such company, with a clear understanding that in the event of a breach of the aggregate NRI/FPI limits or the sectoral cap, they will be required to to disinvest the excess holding within five trading days from the date of settlement of the trades
• The data on the available investment headroom is updated on a daily end-of-day basis as long as the red flag remains active

Breach of foreign investment limits and Disinvestment methodology:

• Once the aggregate FPI/NRI investment limits or the sectoral cap for a particular company have been breached, the depositories will inform the exchanges about the breach
• The stock exchanges will issue the necessary circulars on their respective websites and will stop further purchases by FPIs, NRIs and all foreign investors depending upon the limit being breach (Aggregate FPI limit/Aggregate NRI limit/sectoral cap)
• In case of breach in the foreign investment limit, the proportionate disinvestment methodology will be be followed for disinvestment of the excess shares in order to bring the foreign investment in a company within permissible limits
• Depending on the limit being breached, the disinvestment of the breached quantity will be uniformly spread across all foreign Investors/FPIs/NRIs which are net buyers of the shares of the scrip on the day of the breach. The foreign investors/FPIs/NRIs which are required to disinvest will be identified and informed by depositories of the excess quantity that they are required to disinvest
• The proportionate disinvestment methodology and identification of investors for disinvestment has been explained in the following example:

• Depositories identify the investors depending upon the breach as explained in the example above
• In case FPIs have been identified for disinvestment, depositories will issue necessary instructions to the custodians of such FPIs for disinvestment of the excess holding within 5 trading days of the date of settlement of the trades. In case NRIs, depositories will issue instructions to AD banks
• The foreign investors will be required to disinvest the excess quantity by selling them only to domestic investors, within 5 trading days of the date of settlement of the trades that caused the breach
• The depositories utilizes the FPI trade data provided by the custodians, post custodial confirmation, on T+1 day (T= Trade date) detects breaches, if any at the end of T+1 day. The foreign investors, who have purchased the shares on T+1 day will be given a time period of 5 trading days from date of settlement of such trades, to disinvest the holding accruing from the such purchase trades. Trades executed on T+1 day, will be settled on T+3 day and thereafter a time period from T+4 day to T+8 day (5 trading days) will be available to such foreign investors

Example:

A FPI XYZ purchases 1000 shares of ABC Ltd on 01 April. At the end of the day on 01 April, if NSDL detects breach in the permissible limit for ABC Ltd, FPI XYZ will be identified for proportionate disinvestment in the manner as explained in the above table. On 03 April, trade of 1000 shares of ABC Ltd will settle in the account of XYZ.  Accordingly, disinvestment period of 5 trading days will begin from 04 April onwards. (Assumption: There are no trading/public holidays falling on any days from 01 April to 04 April)

• If T+1 is a settlement holiday, then the custodial confirmation of the trade executed on T day will be done on T+2 day and the subsequent settlement of the trade on T+3 day. In such a scenario, the depositories would detect breach at the end of T+2 day
• In case, total FPI holdings in a company comes within permissible limit during the time period for disinvestment, on account of sale by other FPI or other group of FPIs, the original FPIs, which have been advised to disinvest, would be still required to disinvest within the disinvestment time period, irrespective of the fresh availability of an investment headroom during the disinvestment time period
• Failure to disinvest within 5 trading days – In case of breach in investment limits and the identified FPIs fail to disinvest within 5 trading days, then necessary action will be taken by SEBI against such FPIs

Breach/Ban List:

• Apart from red flag list, the depositories and Exchanges also publish breach list on a daily basis. The breach list contains the name of companies wherein aggregate FPI/NRI limit and sectoral limit has breached
• FPIs are not permitted to trade in shares of companies in breach of aggregate FPI limit and sectoral limit. The Inter FPI segment wherein one FPI could buy shares of companies under breach from other FPIs has been discontinued with effect from 01 July 2018.

The earlier monitoring mechanism by RBI has been discontinued.

For Non- Banking Financial Company (NBFC), prior approval of RBI required for:

• Any takeover or acquisition of control of an NBFC
• Any change in the shareholding of an NBFC
• Any change in the management of the NBFC 
  
  

Debt Securities

The primary responsibility of complying with all the debt investment limits and conditions (stipulated by RBI and SEBI from time to time) lies with the FPI. Depositories shall monitor the investments at the investor group level while custodians shall monitor the investments of their own clients.

The FPI debt investment limits applicable are as under:

** Corporate Bonds limits remain the same as was notified on March 31, 2021

• Long Term* investment limits are reserved for FPIs registered with SEBI under the categories of Sovereign Wealth Funds, Multilateral Agencies, Endowment Funds, Insurance Funds, Pension Funds and Foreign Central Banks (Long Term FPIs).
• All previous sub-categories under Corporate Debt investment limits were discontinued and there is now only a single limit for FPI investment in all types of corporate bonds.
• FPI investment in defaulted corporate bonds / Non-Convertible Debentures (NCD) will be exempted from the short-term limit and the minimum residual maturity requirement under the medium-term framework.
• Investment of Government securities (Gsecs) coupons by FPIs is now reckoned within the Government Debt – General limit.
• The coupon reinvestment arrangement has been extended to SDLs. Accordingly, FPIs will now be allowed to reinvest coupons received on their investments in SDLs. The reinvestment facility is available for two working days.
• FPIs are not permitted to make fresh investment in partly paid debt instruments.
• FPI short term investment (i.e. investment in debt having residual maturity of up to one year) in any category of debt (Gsecs, SDLs or corporate bonds) should not exceed 20% of the total investment by an FPI in that category applied on an end-of-day basis. FPI short term investment may exceed the 20% threshold only if it consists entirely of investment made on or before April 27, 2018. Any breach with this requirement will be reported to the RBI and SEBI for necessary action.
• Investment by FPIs along with ‘related FPIs’ in respective debt categories (Gsecs, SDLs or corporate bonds) cannot exceed following concentration limits:

• Long Term FPIs: 15% of prevailing investment limit in respective category
• All Other FPIs: 10% of prevailing investment limit in respective category
• There is no residual maturity requirement for investment in Gsecs including Treasury bills (T-bills) and State Development Loans (SDLs) and municipal bonds. However FPIs are permitted to invest only in corporate bonds with residual maturity of above one year. Corporate bonds with residual maturity of 1 year or below, including commercial papers, are not eligible for FPI investment.
• Investment by FPIs in municipal bonds should be within the investment limits prescribed for FPI investment in SDLs.

Corporate Debt

• An FPI along with its related FPIs cannot invest in more that 50% of any issue of a corporate bond.
• The condition mentioned above for corporate bond investments would not apply to:
  • Multilateral financial institutions in which the Government of India is a member
  • FPI investment in security receipts issued by asset reconstruction companies.
• FPIs are permitted to invest in debt oriented mutual funds within the overall FPI investment limit prescribed for corporate debt. . However, investment in certain categories of debt oriented mutual fund schemes is prohibited as these schemes invest in the debt securities having less than 1 year average maturity. Currently, FPI investment in below mentioned scheme categories is prohibited:  
  • Overnight Fund
  • Liquid Fund
  • Money Market Fund
• Corporate debt limit is freely available till the aggregate FPI investment reaches 95% of the limit, after which the auction mechanism will be triggered for allocation of the remaining limits. Auction mechanism will be discontinued when the aggregate FPI investment falls below 92% again and the debt limit will become available on tap.
• Debt limit allocation via Auction

Once the aggregated FPI investment reaches 95%, the following procedures will be adopted for allocating the unutilized limits for FPIs:

• When auction mechanism is initiated, FPIs will have a reinvestment period of 2 trading days upon sale/redemption of corporate debt securities purchased using the debt limits acquired in auction. The facility of re-investment will be withdrawn once the aggregate debt limit is available on tap again i.e. aggregate FPI investment falls below 92 %.
• NSDL will inform DDP and stock exchanges when the aggregate FPI investment falls below 92% through its website. NSDL updates the site daily on the basis of trade data received from various custodians.
• FPI investment in Innovative Perpetual Debt Instruments (eligible for inclusion as Tier 1 Capital) should not exceed the aggregate ceiling of 49% of each issue and investment by individual FPI should not exceed 10% of each issue.
• FPI investment in unlisted corporate debt and securitized debt is reckoned within the corporate debt limit. However, investment by FPIs in unlisted corporate debt is subject to end use restrictions on investment in real estate business, capital market and purchase of land. Such investment is also required to be made compulsorily in dematerialized form and subject to a minimum residual maturity of one year.
• FPI investment limit in Security Receipts (SRs) can be made up to 100% of each tranche of scheme of SRs issued by Asset Reconstruction Companies (ARCs). Such investment should be within the FPI limit on corporate bonds prescribed from time to time.
• The SEBI vide circular dated September 22, 2017 has decided to exclude foreign investment in rupee denominated bonds issued overseas by Indian corporates (i.e. Masala bonds) from the corporate debt investment limit. Masala bonds will now be part of External Commercial Borrowings (ECB) and shall be monitored as per RBI’s ECB guidelines.

Government debt

• Aggregate investment by FPIs in any government security (scrip) is allowed up to 30% of the outstanding in that security. The security-wise limit is also applicable to T-bills.
• Utilisation of FPI investment limits in Gsecs and SDLs is monitored online by CCIL. Any transactions breaching the limit in each category will not be accepted.
• Upon sale/redemption of Gsecs or SDLs, the concerned FPI may reinvest within a period of two working days, starting from the date of the sale/redemption. Any reinvestment made outside the 2-working day period shall be subject to the availability of limits for that category. The Gsecs coupon reinvestment period has been aligned to two working days as well, starting from the date of receipt of the coupons.

Voluntary Retention Route (VRR)

In addition to the normal debt investment limits mentioned above, RBI has introduced the VRR as a separate channel to enable FPIs to invest in debt markets in India. Investment under this route was initially capped at INR 400 billion for Government securities and INR 350 billion for Corporate bonds. Later, in second tranche, RBI notified VRR-combined (capped at INR 547 billion) which is fungible and can be used for investment in Gsecs as well as corporate bonds.  The minimum retention period is three years or as decided by RBI for each allotment. Currently,  VRR scheme first opened for allotment on a ‘first come first served’ basis until 31 December 2019 or  till limits are exhausted whichever is earlier. Successful allottees must invest 75% of allotted amount within six months and are required to maintain minimum 75% of allotted amount throughout the retention period. Investments made by FPIs under VRR,are exempt from any minimum residual maturity requirement, concentration limit or single/group investor-wise limits applicable to corporate bonds. RBI has also notified that the hedging of exchange rate risk by FPIs under VRR through forwards, options, cost reduction structures and swaps with Rupee as one of the currencies. FPIs are required to open separate securities and cash account for VRR investments.

RBI increased the limit under this route to INR 1,500 billion. An additional limit of INR 906 billion (net of existing allotments and adjustments) is available on tap from January 24, 2020 to FPIs.

The Reserve Bank of India (RBI) has introduced a separate route through Fully Accessible Route (FAR) to enable non-residents to invest in specified Government of India dated securities, with effect from April 1, 2020. This scheme will operate along with the two existing routes, i.e. the Medium Term Framework (MTF) and the Voluntary Retention Route (VRR). The following are the key features of FAR:

• ‘Eligible Investors’ are defined as any “person resident outside India” as defined in section 2(w) of the Foreign Exchange Management Act, 1999 (42 of 1999) (FEMA).
• ‘Specified securities’ are defined as Government Securities as periodically notified by the Reserve Bank for investment under the FAR route.
• Eligible investors can invest in specified government securities without being subject to any investment ceilings like, minimum residual maturity, 30% outstanding stock and concentration limit. There will be no quantitative limit on investment by eligible investors in the specified securities. Investments made under FAR will also not be subject to the limits specified in paragraphs 4(b), (c) and (e) respectively, of A.P. (DIR Series) Circular No. 31 dated June 15, 2018 (read with A.P. (DIR Series) Circular No. 18 dated January 23, 2020). All investments by eligible investors in the specified securities will be under the FAR from the date on which the FAR comes into effect.
• Existing investments by eligible investors in specified securities will be reckoned under the FAR.
• FPIs, Non-Resident Indians (NRI), Overseas Citizens of India (OCI) and other entities permitted to invest in Government Securities under the Debt Regulations can invest under this route as hitherto under existing arrangements. Eligible investors other than those referred to in this point, may invest through International Central Securities Depositories. The process for such investments will be notified by RBI in due course.
• FPIs who currently hold investments in the specified securities shall, within one year from the date on which the FAR comes into effect, readjust their investments under the MTF to comply with requirements mandated by RBI.

FPIs are free to repatriate the capital, capital gains, dividends, interest and other income after payment of applicable taxes.

All local custodian in the India market have decided to charge investors a flat fee of INR 100 for each FX transaction executed by them. Each FX transaction includes all FX deals (purchase and sale separately) executed for each account at a single point of time with the same FX rate.

RBI has made the Legal Entity Identifier (LEI) mandatory for all non-individuals participating in government securities markets, money markets and non-derivative foreign exchange markets. Investors who do not have their valid LEI may not be able to undertake transactions in government securities, money markets and non-derivative FX (settling up to SPOT date). LEI is not required for trades value less than USD 1 million (approximately INR 70 million).

Cash clearing is both manual and electronic, in the case of manual clearing the payments are effected by delivery of cheques.Clearing of cheques may take 2-3 days depending on the location at which the cheque is drawn.

RBI has also, effective March 26, 2004, initiated Real Time Gross Settlement (RTGS) of funds. This system is currently used for inter-bank transactions (mechanism for settlement of bank to bank obligations using funds maintained by the banks with RBI) as well as customer transactions. Funds movements relating to securities market transactions are routed either through the physical clearing system or through RTGS. With effect from 16 December 2019, the RBI has made National Electronic Funds Transfer (NEFT) facility available on 24X7 basis on all days of the year, including holidays.

Effective April 1, 2021, RBI will introduce the LEI requirement for large value transactions (INR 500 million and above) in the Centralised Payment Systems.

Local regulations in India do not permit funding of FPI investment through overdraft or other sources. Regulations also prescribe aggregation relationships, therefore, zero balance accounts, pooling etc. is not available across sub-accounts of a FPI, or across FPIs for a global custodian/DDP.

Dividends are ex-date driven. Payment is made electronically through banking system.

Varies with issue, although normally annually.

Companies are required to dispatch dividend warrants/cheques to its shareholders within 30 days of the AGM date for final dividend and normally the date of board resolution for interim dividend.


Mode of Payment of dividend - Dividend is generally paid by the companies through Electronic Clearing System (ECS) and the same is credited to the client's account the same day. However, in case the company pays the dividend by Demand draft / Warrants then the funds are credited to the client's account on realisation of the instrument, which may take two working days. Cheques on locations outside Mumbai may take longer to realise and may take up to seven days.

Varies with issue, although usually semi-annually.

For bonds held in registered form, the interest entitlement is calculated based on holdings as of record date and paid by electronic clearing system. Interest payments are made net of withholding tax. Interest on T-bills and SGL-based government bonds is paid at GROSS basis directly to the holder's account at the RBI on payment date.

Government Debt – 30/360 day basis
Other Debt – Actual/365 day basis

To declare a corporate event, such as a dividend or bonus issues, the company must notify the relevant stock exchanges at least before the books close/record date. However, if company has been mandated to be compulsorily traded in dematerialised form, this period is reduced to 21 days.

Margins
Effective from May 1, 2010, Qualified Institutional Buyers (QIBs), including Foreign Institutional Investors (FII), are required to pay 100% margin when applying for any public issue.

ASBA Facility
The Securities and Exchange Board of India (SEBI) has made applications supported by the blocked amount (ASBA) facility mandatory for all public issues and rights issues.

Ex-dates is used to determine whether corporate benefits are due to the investor or not, depending on the execution date of the trades done during this period. An ex-date is the date before which, if that particular stock is bought on the exchange, the buyer is entitled to receive the entitlements (dividend/rights/bonus).

Foreign investors are entitled to exercise voting rights, with restrictions (e.g. a maximum cap is specified for voting rights for an Investor in a Private Sector bank).

No.

Provided in English. General meetings are announced three weeks in advance.

On request, subject to availability.

On request, subject to availability.

Required.

Voting is executed by a show of hands unless a poll is demanded. A proxy may demand a poll if they hold 10% of the voting rights or INR 50,000 paid up capital. Proxies can only vote if there is a poll.

The Ministry of Corporate Affairs has notified a policy to make electronic voting mandatory for all listed companies in respect of those businesses to be transacted through postal ballot . Accordingly, In light of the above changes in regulation, companies in India have started providing the E-voting option while announcing annual general meetings (AGM), extra ordinary general meetings (EGM) etc. in addition to resolutions passed by postal ballot (PB). 

Our subcustodian has already registered with National Securities Depository Limited (NSDL), and the Central Depository Services (India) Limited (CDSL) who acts as approved agencies to provide an e-voting platform. Local subcustodian will also endeavor to register with other agencies as and when required.

Effective April 1, 2020, the dividend distribution tax (DDT) paid by the companies is removed and dividend income will now be subject to Withholding Tax (WHT) at the rate of 20% plus applicable surcharge and cess. The maximum surcharge of 15% would be applicable on dividend income. The total WHT applied (20% + surcharges & cess) will be calculated by the issuing company based on the dividend threshold tiering. For all dividend income received post April 1, 2020, the investor’s local tax consultant has to provide the local subcustodian with a tax clearance certificate prior to repatriation. In case the tax to be paid is more than what the company has deducted at source, RBCIS has a standing instruction in place with our subcustodian who will withhold the differential amount as advised by the investor’s local tax consultant and pay it to the tax authorities and then repatriate the balance. There is no need for a separate instruction making the tax payment.

Withholding tax on interest is withheld at source by the issuing company. The rates could however be different in cases where the beneficial rates are applicable as per the Double Tax Avoidance Agreement (DTAA) with other countries. The following table provides the tax rates for interest for FPIs:

The above mentioned tax rates are inclusive of surcharge and cess.

Reduced tax rate on interest for investment in Government Securities and Corporate bonds

Interest paid to FPIs between 1 June 2013 and 30 June 2017* on Government securities and rupee denominated bond will be taxed at 5 per cent instead of 20 per cent.

*As per the Union Budget for 2017-18 proposal, this benefit will be extended till 30 June 2020.

The benefit of reduced withholding tax rate in respect of rupee denominated bond of an Indian company was applicable to bonds where the interest rate of the bond does not exceed the rate notified by the Government.  As per the notification, for bonds issued before the 1 July 2010, the rate of interest shall not exceed 500 basis points (bps) over the Base Rate of State Bank of India (SBI) as on the 1 July 2010.  Accordingly, for bonds issued before 1 July 2010, the cap on the interest will be 12.50 per cent (SBI base rate of 7.50 per cent as of 1 July 2010 + 5 per cent).

For bonds issued on or after the 1 July 2010, the rate of interest shall not exceed 500 bps over the Base Rate of SBI applicable on the date of issue of the said bonds. Accordingly, for bonds issued on or after 1 July 2010, the cap on the interest will depend on the SBI base rate at the time of issue of such bonds.  The SBI base rate is available on SBI’s website www.sbi.co.in.

Indian tax laws mandate payment of capital gains tax (CGT) on the profits derived from sale of securities held by all categories of investors (including foreign investors). The standard CGT rates applicable to Foreign Portfolio Investors (FPIs) are as follows: 

Non-corporates

• Tax rates for non-corporates with income upto INR 5M is inclusive of cess @ 4%
• Tax rates for non-corporates with income exceeding INR 5M but not exceeding INR 10M is inclusive of surcharge @10% and cess @ 4%
• Tax rates for non-corporates with income above INR 10M is inclusive of surcharge @ 15% and cess @ 4%
  

Corporates

• Tax rates for corporates with income upto INR 10M is inclusive of cess @ 4%
• Tax rates for corporates with income above INR 10M but not exceeding INR 100M is inclusive of surcharge @ 2.0% and cess @ 4%
• Tax rates for corporates with income above INR 100M is inclusive of surcharge @ 5.0% and cess @ 4%

Long Term Capital Gains (LTCG)

• LTCG made from transfer of listed equity and equity oriented mutual funds in excess of INR 100,000 are subject to tax @ 10% + surcharge and cess
• Gains made up to 31 Jan 2018 are grandfathered

General

• Investors based in countries that have a DTAA with India, may avail of beneficial rate/provisions, if any, as per the DTAA.

Tax Filing on Sale of Underlying Shares Converted from ADR/GDR/FCCB

• As required by the local regulations, client needs to open a special ADR/GDR/FCCB account to receive in the shares resulted from conversion of ADR/GDR/FCCB for safekeeping. The remittance of proceeds from sale of underlying shares converted from ADR/GDR/FCCB is effected by the local custodian in a different manner as compared to local shares acquired directly in India. Before repatriation, the custodian will require an accountant's certificate in Form 15CB and information furnished by the remitter in Form 15CA from the client’s tax consultant who have to complete the necessary Foreign Currency Transfer of Shares (FCTRS) filing on behalf of the client within 60 days from the date of the sale trade.

The Finance Bill 2019 (Interim Union Budget for financial year 2019-20) introduced amendments in the Indian Stamp Act, 1899. Through these amendments, exemption from stamp duty levy applicable to transfer of securities in dematerialised form and transfer of units of mutual funds was withdrawn. Additionally, stamp duty rate (furnished below) were inserted in the Stamp Act along with by whom such stamp duty would be payable. The provision has also been made for centralized collection of stamp duty by stock exchanges or clearing corporations authorized by it or depositories. These amendments will come into force on Thursday, 09 January 2020. Implementation of the revised rules on the stamp duty payable on instruments transacted on stock exchanges and depositories will be effective from July 1, 2020.

The stamp duty rates will be payable by following:

All taxes applicable to FPI transactions must be paid prior to repatriation of funds. Repatriation can be effected after the No Objection Certificate (NOC) is obtained from a tax consultant.

Advance Tax

While the tax year runs from April 1 to March 31, taxes need to be estimated in advance and paid in instalments to the tax authorities. Taxes become payable by the 15th of each quarter, i.e. June 15, September 15, December 15 and March 15. Accordingly, advance taxes on trades executed from the last date on which tax was paid until the current quarter need to be considered when computing the amount of advance tax payable. If advance tax is not paid correctly, investors would need to pay interest.

Securities Transaction Tax (STT)

STT was introduced as per Finance Bill 2004 on taxable security transactions executed on stock exchanges. The effective STT rates are as under:

Goods and Services Tax (GST)
GST was implemented in India from July 1, 2017. Financial services would be subject to GST at the rate of 18%.

INDIA Holiday Calendar

• Ministry of Financefinmin.nic.in
• Reserve Bank of Indiarbi.org.in
• Securities and Exchange Board of Indiasebi.gov.in
• Bombay Stock Exchangebseindia.com
• National Securities Clearing Corporationnseindia.com
• Clearing Corporation of Indiaccilindia.com
• National Securities Depository Limitednsdl.co.in
• Central Depository Services (India) Ltd. www.cdslindia.com