Fiis - Regulations and Impact on India
FIIs – Regulations and Impact on Indian Markets
Who is a Foreign Institutional Investor?
A foreign Institutional Investor (FII) is an institution established or incorporated outside India which proposes to make investment in securities of companies incorporated in India (“Indian Companies”) [1]. FIIs seeking to invest in Indian Companies are required to be registered with the Securities and Exchange Board of India (SEBI). They need to comply with the provisions of the Guidelines for Foreign Institutional Investors and the Securities and Exchange Board of India (Foreign Institutional Investors) Regulations, 1995 (the "SEBI Regulations").
The majority of the foreign investment into the securities market in India comes from Mauritius, a member of International Organisation of Securities Commissions (IOSCO), because of the existence of a favourable tax treaty between the two countries [2]. Nearly 30% of the FIIs trading on the Indian stock market operate from Mauritius. As on June 27, 2008 the number of FIIs registered with the SEBI was 1403.
Regulation of FIIs
There are two main bodies regulating portfolio investment in India- SEBI and RBI (Reserve Bank of India). Every FII is required to register with SEBI and shall comply with the Exchange Control Regulations of RBI. SEBI (FII) Regulations, 1995 and Regulation 5(2) of FEMA regulates the FIIs. Under the regulation of FEMA, RBI approval is also required in order to purchase or sell securities on stock exchanges, open foreign currency and Indian Rupee accounts with a designated bank branch. The permission from RBI is not required so long as the FIIs purchase and sell on
recognized stock exchange. All non-stock exchange sales/purchases require RBI permission.
Registration with the SEBI
a) Major Criterias
• FIIs seeking a license from the SEBI are required to be registered with a recognized foreign securities regulatory authority (recognized by the SEBI) or foreign tax authority.
• They
Who is a Foreign Institutional Investor?
A foreign Institutional Investor (FII) is an institution established or incorporated outside India which proposes to make investment in securities of companies incorporated in India (“Indian Companies”) [1]. FIIs seeking to invest in Indian Companies are required to be registered with the Securities and Exchange Board of India (SEBI). They need to comply with the provisions of the Guidelines for Foreign Institutional Investors and the Securities and Exchange Board of India (Foreign Institutional Investors) Regulations, 1995 (the "SEBI Regulations").
The majority of the foreign investment into the securities market in India comes from Mauritius, a member of International Organisation of Securities Commissions (IOSCO), because of the existence of a favourable tax treaty between the two countries [2]. Nearly 30% of the FIIs trading on the Indian stock market operate from Mauritius. As on June 27, 2008 the number of FIIs registered with the SEBI was 1403.
Regulation of FIIs
There are two main bodies regulating portfolio investment in India- SEBI and RBI (Reserve Bank of India). Every FII is required to register with SEBI and shall comply with the Exchange Control Regulations of RBI. SEBI (FII) Regulations, 1995 and Regulation 5(2) of FEMA regulates the FIIs. Under the regulation of FEMA, RBI approval is also required in order to purchase or sell securities on stock exchanges, open foreign currency and Indian Rupee accounts with a designated bank branch. The permission from RBI is not required so long as the FIIs purchase and sell on
recognized stock exchange. All non-stock exchange sales/purchases require RBI permission.
Registration with the SEBI
a) Major Criterias
• FIIs seeking a license from the SEBI are required to be registered with a recognized foreign securities regulatory authority (recognized by the SEBI) or foreign tax authority.
• They
References: [1] Regulation 2(f) of the Securities and Exchange Board of India (Foreign Institutional Investors) Regulations, 1995. (http://www.sebi.gov.in/acts/act07a.html) [2] Mauritius: A Guide to Global Business, HSBC Bank publication, Sept 2007 [3] “Foreign Institutional Investment”, Rajesh Chakrabarti, ISB [4] Sunil Nayanar, Who’s driving this bull run? <http://inhome.rediff.com/money/2003/oct/06spec.htm>, October 06, 2003.