Regulation 21 - Investment restrictions - Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2014

Investment restrictions. 21. (1) A foreign portfolio investor shall invest only in the following securities, namely- (a) 1 [Shares], debentures and warrants of companies, listed or to be listed on a recognized stock exchange in India 2 [, through primary and secondary markets]; (b) Units of schemes floated by domestic mutual funds, whether listed on a recognized stock exchange or not; (c) Units of schemes floated by a collective investment scheme; (d) Derivatives traded on a recognized stock exchange; (e) Treasury bills and dated government securities; (f) Commercial papers issued by an Indian company; (g) Rupee denominated credit enhanced bonds; (h) Security receipts issued by asset reconstruction companies; (i) Perpetual debt instruments and debt capital instruments, as specified by the Reserve Bank of India from time to time; (j) Listed and unlisted non-convertible debentures/bonds issued by an Indian company in the infrastructure sector, where infrastructure is defined in terms of the extant External Commercial Borrowings (ECB) guidelines; (k) Non-convertible debentures or bonds issued by Non-Banking Financial Companies categorized as Infrastructure Finance Companies (IFCs) by the Reserve Bank of India; (l) Rupee denominated bonds or units issued by infrastructure debt funds; (m) Indian depository receipts; 3 [***] 4 [(n) Unlisted non-convertible debentures/bonds issued by an Indian company subject to the guidelines issued by the Ministry of Corporate Affairs, Government of India from time to time; (o) Securitized debt instruments, including,- (i) any certificate or instrument issued by a special purpose vehicle set up for securitization of asset/s with banks, financial institutions or non-banking financial institutions as originators; and (ii) any certificate or instrument issued and listed in terms of the Securities and Exchange Board of India (Public Offer and Listing of Securitised Debt Instruments) Regulations, 2008; and] 5 [(p)] Such other instruments specified by the Board from time to time. (2) Where a foreign institutional investor or a sub account, prior to commencement of these regulations, holds equity shares in a company whose shares are not listed on any recognized stock exchange, and continues to hold such shares after initial public offering and listing thereof, such shares shall be subject to lock-in for the same period, if any, as is applicable to shares held by a foreign direct investor placed in similar position, under the policy of the Government of India relating to foreign direct investment for the time being in force. (3) Nothing contained in sub-regulation (2) shall be deemed to prejudice the applicability of any other law, regulation or guideline. (4) In respect of investments in the secondary market, the following additional conditions shall apply: (a) A foreign portfolio investor shall transact in the securities in India only on the basis of taking and giving delivery of securities purchased or sold; (b) Nothing contained in clause (a) shall apply to: (i) any transactions in derivatives on a recognized stock exchange; (ii) short selling transactions in accordance with the framework specified by the Board; (iii) any transaction in securities pursuant to an agreement entered into with the merchant banker in the process of market making or subscribing to unsubscribed portion of the issue in accordance with Chapter XB of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009; (iv) any other transaction specified by the Board. (c) No transaction on the stock exchange shall be carried forward; (d) The transaction of business in securities by a foreign portfolio investor shall be only through stock brokers registered by the Board; (e) Nothing contained in clause (d) of this sub-regulation shall apply to: (i) transactions in Government securities and such other securities falling under the purview of the Reserve Bank of India which shall be carried out in the manner specified by the Reserve Bank of India; (ii) sale of securities in response to a letter of offer sent by an acquirer in accordance with the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011; (iii)sale of securities in response to an offer made by any promoter or acquirer in accordance with the Securities and Exchange Board of India (Delisting of Equity shares) Regulations, 2009; (iv) sale of securities, in accordance with the Securities and Exchange Board of India (Buy-back of securities) Regulations, 1998; (v) divestment of securities in response to an offer by Indian Companies in accordance with Operative Guidelines for Disinvestment of Shares by Indian Companies in the overseas market through issue of American Depository Receipts or Global Depository Receipts as notified by the Government of India and directions issued by Reserve Bank of India from time to time; (vi) any bid for, or acquisition of, securities in response to an offer for disinvestment of shares made by the Central Government or any State Government; (vii) any transaction in securities pursuant to an agreement entered into with merchant banker in the process of market making or subscribing to unsubscribed portion of the issue in accordance with Chapter XB of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009; 6 [(viii) transactions by Category I and II foreign portfolio investors, in corporate bonds, as may be specified by the Board; (ix) transactions on the electronic book provider platform of recognized stock exchanges;] 7 [(x)] any other transaction specified by the Board. (f) A foreign portfolio investor shall hold, deliver or cause to be delivered securities only in dematerialized form: Provided that any shares held in non-dematerialized form, before the commencement of these regulations, can be held in non-dematerialized form, if such shares cannot be dematerialized. (5) In respect of investments in the debt securities, the foreign portfolio investors shall also comply with terms, conditions or directions, specified or issued by the Board or Reserve Bank of India, from time to time, in addition to other conditions specified in these regulations. Explanation. - For the purposes of this sub-regulation, the expression debt securities shall include dated Government securities, commercial paper, treasury bills, listed or to be listed corporate debt, units of debt oriented mutual funds, unlisted non-convertible debentures / bonds in the infrastructure sector, security receipts issued by asset reconstruction companies or any other security, as specified by the Board from time to time. (6) Unless otherwise approved by the Board, securities shall be registered in the name of the foreign portfolio investor as a beneficial owner 8 [ , as defined in clause (a) of sub-section (1) of section 2 ] of the Depositories Act, 1996. (7) The purchase of equity shares of each company by a single foreign portfolio investor or an investor group shall be below ten percent of the total issued capital of the company. (8) The investment by the foreign portfolio investor shall also be subject to such other conditions and restrictions as may be specified by the Government of India from time to time. (9) In cases where the Government of India enters into agreements or treaties with other sovereign Governments and where such agreements or treaties specifically recognize certain entities to be distinct and separate, the Board may, during the validity of such agreements or treaties, recognize them as such, subject to conditions as may be specified by it. (10) A foreign portfolio investor may lend or borrow securities in accordance with the framework specified by the Board in this regard. Explanation.- For the purposes of this regulation, the words security receipts , asset reconstruction , securitisation company and reconstruction company shall have the meanings respectively assigned to them under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. *********** 1 Substituted for Securities in the primary and secondary markets including shares by the Securities and Exchange Board of India (Foreign Portfolio Investors) (Amendment) Regulations, 2017, w.e.f. 12-1-2017. 2 Inserted by the Securities and Exchange Board of India (Foreign Portfolio Investors) (Amendment) Regulations, 2017, w.e.f. 12-1-2017. 3 The word and omitted by the Securities and Exchange Board of India (Foreign Portfolio Investors) (Second Amendment) Regulations, 2017, w.e.f. 27-2-2017. 4 Inserted by the Securities and Exchange Board of India (Foreign Portfolio Investors) (Second Amendment) Regulations, 2017, w.e.f. 27-2-2017. 5 Sub-clause (n) re-named as sub-clause (p) by the Securities and Exchange Board of India (Foreign Portfolio Investors) (Second Amendment) Regulations, 2017, w.e.f. 27-2-2017. 6 Inserted by the Securities and Exchange Board of India (Foreign Portfolio Investors) (Amendment) Regulations, 2017, w.e.f. 12-1-2017. 7 Sub-clause (viii) re-numbered as sub-clause (x) by the Securities and Exchange Board of India (Foreign Portfolio Investors) (Amendment) Regulations, 2017, w.e.f. 12-1-2017. 8. Substituted vide Notification No. SEBI/LAD-NRO/GN/ 2018 /58 dated 31-12-2018 before it was read as, for the purposes