Regulatory Relief: SEBI Increases the Size Criteria for Additional Disclosures by FPIs

In furtherance of a consultation paper dated January 10, 2025 (Consultation Paper, which can be viewed by clicking on this link), the Indian securities market regulator – Securities and Exchange Board of India (SEBI), at its 209th board meeting held on March 24, 2025 (Board Meeting, press release for which can be viewed by clicking on this link), has approved a proposal to revise the size-based threshold under the additional disclosure framework for Foreign Portfolio Investors (FPIs), providing much-needed relief to FPIs operating in or looking to enter the Indian securities market. The relevant circular in this regard to implement the proposed changes has been issued by SEBI on April 9, 2025 (which can be viewed by clicking on this link). The revision comes in response to substantial growth in market volumes, with average daily turnover in the capital market segment at NSE increasing by 122% between FY 2022-23 (when these limits were initially set) and the current FY 2024-25.

 

The additional disclosure framework was introduced through SEBI’s circular dated August 24, 2023 (as amended from time to time) (Circular) and thereafter incorporated under the SEBI Master Circular for ‘Foreign Portfolio Investors, Designated Depository Participants and Eligible Foreign Investors’ dated May 30, 2024 (as amended from time to time). The Circular was aimed to guard against potential circumvention of regulatory norms — particularly Press Note 3 of 2020 (PN3) issued by the Department for Promotion of Industry and Internal Trade (DPIIT) and the minimum public shareholding norms — by mandating full ‘look-through’ disclosures of ownership, economic interest, and control structures (up to the level of natural person) by FPIs that meet the following criteria:

 

• Size Criteria: Applies to FPIs, individually or together with investor group, holding more than INR 25,000 crore (now revised to INR 50,000 crore) of equity assets under management (AUM) in the Indian markets.

 

• Concentration Criteria: Applies to FPIs holding more than 50% of their Indian equity AUM in a single Indian corporate group.

 

Certain FPIs, including those having a broad based, pooled structure with widespread investor base or those having ownership interest by Government or Government related investors were also exempted from such additional disclosure requirements, subject to certain conditions.

 

The key aspects of the revision pursuant to the Consultation Paper and the Board Meeting are as follows:

 

1. Revised Size Criteria Threshold

The threshold limit under the Size Criteria has been increased from INR 25,000 crores to INR 50,000 crores. Consequently, only FPIs, individually or together with investor group, holding more than INR 50,000 crores of equity AUM in Indian markets and having the ‘potential to disrupt the functioning of market’ will now be required to disclose details of all entities (up to the level of natural person) holding any ownership, economic interest, or control, on a full look through basis, without any thresholds.

 

2. No Change in Concentration Criteria

SEBI has clarified that no changes have been made to the additional disclosure requirements for FPIs holding more than 50% of their Indian equity AUM in a single Indian corporate group. Thus, FPIs falling within Concentration Criteria will continue to be subject to the additional disclosure requirements since the Concentration Criteria is specifically designed to guard against possible circumvention of Minimum Public Shareholding (MPS) norms and requirements under SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 2011 (Takeover Code).

 

3. Combined Equity Holdings Consideration

In terms of the Consultation Paper, the additional disclosure framework was proposed to be made applicable to Offshore Derivative Instruments (ODI) subscribers and segregated portfolio(s) of FPIs with sub-funds or separate classes of shares or equivalent structure(s). Thus, for computing breach of the Size Criteria, combined equity holdings/positions through both FPI and ODI routes was proposed to be considered to address regulatory arbitrage effectively. However, the Board Meeting does not specifically address the same and it remains to be seen whether amendments in this regard will be introduced by SEBI.

 

 

4. Continued PMLA Compliance Requirement

All FPIs remain obligated to comply with applicable provisions under the Prevention of Money Laundering Act, 2002 (PMLA) and the rules framed thereunder, irrespective of their size or portfolio composition.

 

5. Exemptions to certain FPIs

The exemptions granted to certain broad-based or government-linked FPIs, and the validation mechanism prescribed under the Standard Operating Procedure (SOP) issued by the Custodians and Designated Depository Participants Standard Setting Forum (CDSSF) under the additional disclosure framework, will continue as is.

 

Overall, this change is expected to reduce the compliance burden for several FPIs while maintaining the regulatory intent of guarding against potential circumvention of PN3 stipulations.