The Securities and Exchange Board of India (SEBI) has released a consultation paper proposing an increase in the size criteria under the additional disclosure framework for Foreign Portfolio Investors (FPIs) and Offshore Derivative Instrument (ODI) subscribers. This move aims to address concerns about potential circumvention of Press Note 3 (PN 3) stipulations and adapt to the rapidly growing Indian securities market.
Background on the Additional Disclosure Framework
In August 2023, SEBI implemented a framework requiring FPIs exceeding INR 25,000 crores in equity assets under management (AUM) to disclose granular details of their investors. This size criterion was introduced to guard against regulatory circumvention, particularly in relation to PN 3 stipulations, which are designed to maintain the integrity of Indian markets against potential market disruptions by large foreign investments.
FPIs meeting the following conditions are subject to these additional disclosures:
- Holding more than 50% of their Indian equity AUM in a single Indian corporate group (concentration criteria).
- Managing Indian equity AUM exceeding INR 25,000 crores (size criteria).
The current proposal focuses on revising the size criterion threshold, which has become increasingly relevant in light of growing market activity.
Rationale for the Revision
Significant Market Growth: SEBI’s analysis reveals a 122% increase in average daily turnover in the Indian capital market segment, rising from INR 53,434 crores in FY 2022-23 to INR 1,18,757 crores in FY 2024-25 (as of December 2024). This growth reflects the increasing depth and maturity of Indian markets, warranting a reassessment of thresholds to ensure relevance and effectiveness.
Enhanced Resilience Against Market Disruptions: With the growth in market activity, FPIs managing larger portfolios now have a proportionally lesser potential to disrupt the market. Therefore, increasing the threshold from INR 25,000 crores to INR 50,000 crores aligns the disclosure requirement with the current market context.
Avoiding Unnecessary Regulatory Burden: By raising the threshold, SEBI seeks to strike a balance between ensuring transparency and avoiding excessive compliance costs for FPIs. The proposal aims to refine the focus on entities with truly significant market impact.
Proposed Changes
SEBI proposes increasing the size criterion for additional disclosure requirements to INR 50,000 crores. The concentration criteria, designed to prevent circumvention of Minimum Public Shareholding (MPS) and Substantial Acquisition of Shares and Takeover (SAST) regulations, will remain unchanged.
Additionally, for calculating compliance with the size criteria, combined equity holdings through FPI and ODI routes will continue to be considered.
Public Participation and Feedback
SEBI has invited stakeholders to provide feedback on the proposal, particularly on the following questions:
- Do you agree with the proposal to increase the size criteria for mandating additional disclosures?
- Is the proposed threshold of INR 50,000 crores appropriate?
The public is encouraged to submit comments by January 31, 2025, through SEBI’s official portal or via email.
Implications for Market Participants
If implemented, the proposal will reduce the number of FPIs subject to granular disclosure requirements, aligning regulatory oversight with the current market dynamics. This revision underscores SEBI’s commitment to fostering a transparent yet flexible regulatory environment, supporting India’s aspirations as a global investment destination.
In conclusion, SEBI’s initiative to update the size criteria reflects a proactive approach to adapting regulations in a fast-evolving market. By striking a balance between transparency and efficiency, the proposal ensures that India’s securities market continues to thrive while maintaining investor confidence.
