SEBI Directed FIIs to Comply with Deadline

Market regulator Securities and Exchange Board of India (SEBI) rejected the demand of foreign institutional investors (FIIs) for extending the 1 October 2010 deadline to comply with new rules that require funds to have a minimum of 20 investors. Sebi had sought additional information on the structure of FIIs and FII sub-accounts back in April 2010 after observing that high-networth individuals were playing the stock market using the FII route . According to SEBI judgement, FIIs have to comply with the October 1 deadline. The FIIs and each of their sub-accounts must therefore now have not less than 20 investors except for a few entities like pension funds. The new SEBI norms also require that no single investor should account for 49 per cent of the fund raised for investment. The entities seeking FII or sub-account registration would be required to disclose whether they are a multi-class share vehicle (MCV) or a segregated portfolio company and whether they maintain segregated or common portfolio for different class of shares. If an entity is structured as MCV or is maintaining a segregated portfolio for separate classes of shares then each class should ensure that they are broad-based in nature. This means each class or unit should have at least 20 investors in it. A MCV is a structure where investors in each class have separate contractual agreement with regards to their liabilities. The demand was rejected with an objective to prevent money laundering and round-tripping, besides identifying the ultimate beneficiary to whom the securities of Indian firms are issued. FII registration with effect from 7 April 2010 was asked to furnish these additional details immediately while existing FIIs and sub-accounts have been given time till 30 September 2010 to disclose their structures.