The Securities and Exchange Board of India has issued a circular directing FIIs to provide additional information pertaining to their structure by September 30.
This is an obvious indicator that SEBI is suspicious that the very structure of the Foreign Institutional Investors could be misused for round-tripping, whereas earlier the regulator's concentration was on misuse of P-note issuances by FIIs, said an expert on regulatory matters.
The FII has to "declare that it is not a Protected Cell Company (PCC) or Segregated Portfolio Company (SPC) and doesn't have an equivalent structure," said the SEBI circular.
FIIs have also been directed to declare that they are not a multi-class share vehicle (MCV) by constitution and do not have an equivalent structure. (MCV by definition means the entity has issued different classes of shares to investors which differentiate the ownership pattern of shareholders.)
The FIIs have to declare that "it (FII investment) contains only single class share," (instead of MCV), said SEBI.
In case an FII happens to be an MCV or has an equivalent structure, it must give an undertaking that common portfolios shall be allocated across various share classes and it shall be broad-based.
Alternatively, it must give an undertaking that if it has segregated portfolios, then each share class shall satisfy the broad-based criteria ; that in case of change in structure of classes of shares, prior SEBI approval shall be sought.
The declarations and undertakings shall be made by all FIIs that are registered with SEBI as on April 7, as well as all fresh applicants. [Source :www.thehindubusinessline.com dated April 16, 2010]
