FPIS seek delay in implementation of Sebi’s DR diktat
Investors in US, UK, EU are obtaining legal advice on circular
The Asia Securities Industry and Financial Markets Association (Asifma), a lobby group for foreign portfolio investors (FPIS), has requested the Securities and Exchange Board of India (Sebi) to postpone its diktat on monitoring foreign holding in depository receipts (DRS) by another three months, citing legal hurdles in implementing the circular in its present form.
The new norms — that became applicable from April 1 and were already postponed by a month — require designated depository participants or custodians to collect, monitor, and report information every month on offshore derivatives instruments (ODIS) and DRS held by FPIS and those foreign entities which belong to the investor group of FPIS.
The industry body has said that investors in the US, the UK, and the European Union are in the process of obtaining legal advice on the circular. It has sought interaction with Sebi, considering the numerous challenges involved in implementing the circular.
Asifma has told Sebi it is engaging in external counsel to seek advice on whether the data relating to holdings in DRS and ODIS outside India can be obtained on legal and regulatory grounds, and the aspects that need to be kept in mind while collating the information. “The detailed work of aggregating data across multiple legal entities in a new way is operationally challenging and work on scoping and resourcing this is in early stages, and dependent on the legal advice and dialogue with Sebi,” the letter to Sebi stated.
In an earlier letter, Asifma had pointed out that a similar structure for reporting ODIS and DRS was not applicable in any other jurisdiction and the association was not aware of any publicly available DR holdings data that could be connected to institutional reference data systems.
It had also pointed to concerns on data security. "The information that is sought from investors is highly sensitive and it would present significant data security regulatory challenges to share such information over e-mail. Cybersecurity threats, particularly when data is transferred between market participants, are heightened and require greater encryption.”
Separately, custodians have highlighted confidentiality concerns while disclosing information to custodians through nodal FPIS, especially when there is no accountbased relationship between the FPIS part of the investor group and the custodian.
To get around this problem, custodians want depositories to develop a centralised web portal to facilitate the nodal FPI or FPI to report the underlying Indian security represented by the ODI or DR directly to the depository. Custodians have pointed out that at present, the depository accounts are opened in the name of registered FPIS and securities are safely kept in that account. For such FPIS, custodians do not maintain the record of the underlying Indian security represented by the ODI or DR.