FII / Sub-Account

Report
Cross-Training Seminar-CSD Familiarization Program
May 30, 2012
Foreign Institutional Investor/Foreign Direct Investments/Qualified
Foreign Investor and Custodian Processes
1
Mumbai, India
Agenda
1)
Foreign Institutional Investors / Sub-Account

Account Set-Up

SEBI Registration

Investment Structure

Investments & Other Regulations
2)
Foreign Direct Investment

Regulation & Investment Modes
3)
Qualified Foreign Investor

Account Set-Up

Investments & Other Regulations
4)
IL&FS Securities Services Limited (ISSL)

Custodial Services
2
Mumbai, India
30th May, 2012
Foreign Institutional Investor
•
A FII is an entity established or incorporated outside India which proposes to
make investments in India.
•
The following entities / funds are eligible to get registered with SEBI as a FII:
3
Pension Funds
Mutual Funds
Investment Trust
Insurance or reinsurance Companies
Foundations or Charitable Trusts
Bank
Endowment Funds
University Funds
Asset Management Companies
Investment Manager / Advisor
(on behalf of Broad Based Funds)
(on behalf of Broad Based Funds)
Institutional Portfolio Managers
Trustees
(on behalf of Broad Based Funds)
(on behalf of Broad Based Funds)
Mumbai, India
30th May, 2012
FII Sub-Account
•
Sub-account includes those foreign Corporates, and Institutions, Funds or
Portfolios established or incorporated outside India on whose behalf
investments are proposed to be made in India by a FII.
•
The following entities / Funds are eligible to get registered as a Sub-Account
University Fund
Endowment Fund
Charitable Trust / Society
Broad-based Fund or Portfolio
Foreign Corporate
Foreign Individual.
Proprietary fund of a registered FII
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Mumbai, India
30th May, 2012
FII / Sub-Account – Account Set-up
•
•
•
Application for registration to be made by the FII to SEBI in the prescribed
forms
The SEBI Registration fees is $5000 and $1000 for the FII and Sub-Account
respectively and the registrations are perpetual.
The FII must appoint the following Market Intermediaries:
 SEBI approved Domestic Custodian - any entity registered with SEBI to
carry on the activity of providing custodial services in respect of securities
 RBI approved Designated Bank - any bank in India which has been
authorized by the Reserve Bank of India to act as a banker to FII.
 SEBI registered Broker - any broker approved to executes trade on Stock
Exchanges
 Tax Advisor - To obtain PAN details, Compute and File Tax returns on
behalf of the FII.
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Mumbai, India
30th May, 2012
FII / Sub-Account – Account Set-up
Code
Purpose
Applied by
Approx Time frame
FII Registration number
Unique number given by SEBI
for all FII’s
FII
15 days
SUB Account
Unique number given by SEBI
for all sub-accounts
FII
15 days
Unique Client Code
Given by the exchange,
required by broker for
trading
Custodian
2-3 days
CDSL / NSDL ID
Depository ID required by
the NSDL and CDSL
Custodian
1 day
BSE Code
With the BSE clearing House
Custodian
1 day
Custodial Participant Code
With the NSE Clearing
House
Custodian
1 day
Permanent Account Number
Unique number given by tax
authorities
Tax Advisor
2-3 Weeks
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Mumbai, India
30th May, 2012
FII – SEBI Registration
ISSL works with clients to complete the FII / Sub accounts application form.
Client forwards to ISSL to review before submission to SEBI
Changes Required
ISSL reviews
application
NO
YES
ISSL reverts to client with suggestions / Clarifications on FII
/ Sub – Accounts approval process
Application In order
ISSL works with clients to complete the FII / Sub accounts application form.
Client forwards to ISSL to review before submission to SEBI
SEBI reviews the application forms & supporting documents. ISSL follows up
with SEBI on status of the application
SEBI has queries on the
application
ISSL follows up with
SEBI on status of the
application
NO
YES
SEBI informs ISSL / FII of queries. ISSL advises client, who arranges for
amendments if the applications / clarification to SEBI queries.
7
SEBI issues approval to the FII / Sub-Account. Copy of
approval is sent to ISSL.
Mumbai, India
ISSL advises client on receipt of
approval from SEBI
30th May, 2012
Foreign Institutional Investor – Investment Structure
FII making proprietary investments
FII making Proprietary Investments
FII’s investing through sub-accounts
FII Investment Manager
Sub Account Fund
Sub Account Fund
Sub Account Fund
Multiple Investment Manager (MIM) structure
FII Investing Fund
Sub Account Fund
Pool managed by IM 1
8
Sub Account Fund
Pool managed by IM 2
Mumbai, India
Sub Account Fund
Pool managed by IM 3
30th May, 2012
FII / Sub-Accounts - Investments & Other Regulations
• Financial Instruments available for FII investments:
•

Securities in primary and secondary markets including shares, debentures
and warrants of companies, unlisted, listed or to be listed on a recognized
stock exchange in India;

Units of mutual funds;

Government Securities, other debt instruments;

Derivatives traded on a recognized stock exchange;

Commercial papers.

Security Receipts
For Normal FII (70-30 Route), the total investment in Equity and Equity
related instruments, shall not be less than 70% of aggregate of all
investments. For100% Debt FII, 100% investments, shall be made in debt
securities only.
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Mumbai, India
30th May, 2012
FII / Sub-Accounts - Investments & Other Regulations
SEBI / RBI Limits on FII Equity Investments
•
•
•
•
•
•
•
FII, on its own behalf, shall not invest in equity more than 10% of total issued
capital of an Indian company.
Investment on behalf of each sub-account shall not exceed 10% of total
issued capital of an India company.
For the sub-account registered under Foreign Companies/Individual
category, the investment limit is fixed at 5% of total issued capital.
These limits are within overall limit of 24% / 49 % / 74% or the sectoral caps,
as applicable and prescribed by Government of India / Reserve Bank of India.
Must adhere to disclosure / compliance requirements in The SEBI
(Substantial acquisition of shares and takeovers, SAST) Regulations and The
SEBI (insider trading)
Must repatriate fund proceeds subject to deduction of applicable taxes and
Forex deals must be executed from underlying securities transactions.
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Mumbai, India
30th May, 2012
Foreign Direct Investments
•
•
•
Foreign Direct Investment (FDI) is a cross border Long-term Investment by an
overseas investor into a Company with an objective to establish a ‘Lasting
Interest’ and an active participation in the Management & Governance of the
Enterprise.
FDI investment is considered to be more reliable & dependable on account of
its Long term nature as compared to the Foreign Portfolio Investment, which
generally has a shorter Investment horizon.
While the Portfolio Investor has an over riding objective of realizing Large
capital gains, the traditional Foreign Direct Investors does not start off with a
pre -conceived plan of exiting & generally stays invested over large periods of
time.
11
Mumbai, India
30th May, 2012
FDI – Regulations & Investment Modes
•
•
•
The Indian FDI is regulated by the FDI Policy guidelines administered by the
Ministry of Commerce. The Department of Industrial Policy and Promotions (DIPP) &
Foreign Investment Promotion Board (FIPB) assist the Government in the FDI Policy
formulation.
The Government has mandated the Reserve Bank of India to monitor the
Administration & Compliance aspect of the FDI.
The FDI policy have been progressively liberalized since the early Nineties to
facilitate large scale Foreign Investment in Indian Companies. Automatic & Prior
Government Permission are the two routes available for making Foreign Direct
Investments in Indian Companies.
 Automatic Route : FDI up to 100% is allowed under this route in all
Sector/Industries except where specific restrictions are placed by the Government
of India. Investments in the Sectors / Industries to the extent permitted under the
Automatic Route do not require any prior approval from the Government, RBI or
any other Agency.
12
Mumbai, India
30th May, 2012
FDI – Regulations & Investment Modes

•
•
Government Permission Route : Investment in the Sector and Industries
not covered under the Automatic Route require prior approval of the
Government. Specific approval in these sector are required to be obtained
from the FIPB, Department of Economic Affairs & Ministry of Finance.
Global Depository Receipts, American Depository Receipts, Foreign Currency
Convertible Bonds and External Commercial Borrowings are some of the
often used modes of FDI Investments of the Overseas Investors into Indian
companies. Government clearances are not required for such issuances
except when the RBI sectoral caps are exceeded or the Investment does not
fall under the Automatic Route.
Any Indian company receiving Overseas FDI under the Automatic or the
Government Approval scheme is obliged to submit the Investment details to
the RBI.
 Company to report within Thirty days, the details of the receipt of amount
of consideration along with the KYC report of the overseas investor to RBI.
 Details of the share issuance to the overseas investor to be reported to the
RBI within Thirty days from the date of issuance, along with the prescribed
supporting documents.
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Mumbai, India
30th May, 2012
Qualified Foreign Investor
•
•
A Qualified Foreign Investor (QFI) is a person not resident in India & not
registered with SEBI as a FVCI, FII or a Sub-Account
The QFI entity should be a resident of the country that is:
 Compliant with Financial Action Task Force standards and
 Signatory to International Organization of Securities Commission.
 The following are the list of countries that are FATF compliant.
Australia
Finland
Luxembourg
South Africa
Austria
Germany
Mexico
Spain
Belgium
Greece
New Zealand
Sweden
Brazil
Switzerland
Hong Kong
Norway
China
India
Portugal
Turkey
Denmark
Italy
Republic of Korea
Japan
United Kingdom
United States of America
Kingdom of the
Netherlands
Singapore
• The QFIs should meet the SEBI prescribed Know Your Customers (KYC)
guidelines.
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Mumbai, India
30th May, 2012
Qualified Foreign Investor - Account Set-up
• The
QFI must appoint a SEBI approved Qualified Depository Participant
(QDP). The QDP serves as an entry point for the QFI for its investments.
The QDP shall complete the KYC of the QFI after ensuring that the end
beneficial ownership of the QFI is not a resident in India.

It has to ensure compliance with all SEBI requirements, the PML acts
and FATF Rules and regulations.

It shall obtain PAN on behalf of the QFI.

It shall set up a Securities Depository account to hold the investments
of the QFI.

It shall assist the QFI set up and open Trading account with SEBI
registered Brokers to execute trades on the Exchanges.

It shall set up and open ‘Single Rupee Pool Account’ with the
Authorized
Bank (Category – 1 Bank) for the purpose of
repatriation and remittance of QFI funds.

15
Mumbai, India
30th May, 2012
QFI – Investments & Other Regulations
•
•
•
•
•
•
•
A QFI can Purchase and Sell Listed equity shares and Mutual Funds through
the QDP. It shall transact only on “Delivery basis”.
It can apply for Equity shares in Public issues & make purchase as against
Right issues.
It can receive Bonus shares and shares arising out of Stock spilt &
Consolidation.
It can tender Equity shares in Open offers and Buy-Back of listed companies.
The total shareholding by an individual QFI shall not exceed Five percent of
the paid up Equity capital of the investee Company at any point of time.
The aggregate shareholding of all QFIs shall not exceed ten percent of paid up
equity capital of the investee company.
The limits are over and above the FII and NRI investment ceilings prescribed
under the Portfolio Investment Scheme. However, these limits are within the
overall limit of 24% / 49% / 79% or the sectoral caps as applicable and
prescribed by the Govt of India / Reserve Bank of India.
16
Mumbai, India
30th May, 2012
QFI – Investments & Other Regulations
•
•
•
•
The QFI sales proceeds to be repatriated by the QDP to the Overseas Bank
account of the QFI within Five working days after deduction and remittances
of tax to the relevant Tax authorities.
The QFI funds to be repatriated back to the Overseas Bank account of the
QFI within Five working days in case no purchases are executed.
Dividend income received to be repatriated back (after deduction and
remittance of tax) to the Overseas Bank account of the QFI within Five
working days or to be invested in fresh purchases.
The QFI investments details to be reported to the depositories on a Daily
basis by the QDP.
17
Mumbai, India
30th May, 2012
Investment Options
Investment Spectrum
Route of Investment
FII
FDI
Unlisted Equity


Listed Equity



Primary Issuances



ADR / GDR

Government Debt

Corporate Debt


Foreign Currency Convertible Bonds

External Commercial Borrowings

Mutual Funds

Exchange Traded Derivatives

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QFI
Mumbai, India

30th May, 2012
Foreign Investments – Schematic Representation
Foreign Investments
Foreign Direct
Investments
Automatic
Route
Foreign Portfolio
Investments
Govt.
Route
FII’
Other Investments
Investments on nonRepartiable basis
G-Sec
NCDs, etc
NRIs, PIOs
NRI’s, PIOs
FIIs
19
Mumbai, India
NRIs, PIOs
30th May, 2012
IL&FS Securities Services Limited (ISSL)
----------------------------------------------------------------------------------------------------------ISSL
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•General Auditing
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Communications
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Services
20
Fund
Accounting
Professional
Clearing
Member for
Equities/
Commodities
/Currencies
Depository
Services
Funding
Products
Mumbai, India
Banking &
Back
Office
Services
Securities
Lending &
Borrowing
Other
Services
30th May, 2012
IL&FS Securities Services Limited (ISSL)
-----------------------------------------------------------------------------------------------------------
What sets us apart
Trusted Brand
• 17 year legacy of Leadership, Trust, Stability and Prestige
• India's largest non-conflict of business, Professional Clearing Member and Custodian
• Only DP providing clients a state-of-art electronic platform (e-Koole) for transactions on NSDL ,CDSL
• Largest Clearing Member in SLB segment
• Amongst the top 3 Non-AMC Custodians
• Recommended best practices to the benefit of Industry and clients
Product Range
• Custodial Services for FII's, Institutions, MFs, HNI, PMS and NRI clients
• Leading Depository Participant Services on NSDL and CDSL and catering to Demat Services on
NCDEX,MCX,NSEL
•Clearing & Settlement Services on the Equity, Currency & Commodity Derivatives Segment of BSE, NSE,MCXSX,USE,NCDEX & MCX
• Lending Products: 'Loan Against Demat Shares', 'Loan Towards Purchase of Shares', 'IPO & ESOP Financing'
• Fund Services to complement your PMS business
• One stop shop for other convenience services: Loans, PAN, NPS, NSR
• Securities Lending & Borrowing
21
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30th May, 2012
IL&FS Securities Services Limited (ISSL)
----------------------------------------------------------------------------------------------------------Our Reach
• Operating seamlessly from 25 pan-India centers. Understanding needs and delivering client satisfaction
• Professionals, with highly diversified skill set, understanding local requirements, ensuring consistent
deliveries
• Seamless technology backbone enabling online transaction processing across 83 centers
Technology Prowess
• In-house IT team of over 70 professionals ensures quicker, appropriate, customized and faster solutions
• Own state-of-the-art Tier III Data Center operational 24 * 7
• High level of redundancy ensuring maximum performance and continuity
• Fully equipped DR site with backup systems updated regularly
• IT systems audited by external auditor for best in class performance
Our Strengths
• Rich capital market experience of large number of Man years.
• Unmatched scale and efficiency. Over 90 million transactions processed successfully in 2011
• Amongst the largest capital base in the Industry
• Cost advantages and economies of scale
• Customized solutions
22
Mumbai, India
30th May, 2012
IL&FS Securities Services Limited – Custodial Services
-----------------------------------------------------------------------------------------------------------
Account
Account Set up
Transition Mgmt
23
Trade
Servicing
Asset
Servicing
Trade Processing
Trade Settlement
Value
Added
Services
Securities
safekeeping &
reconciliation
Corporate Actions
Market Claims
Income
Mumbai, India
Proxy Services
Tax support
Services
Securities
Lending
Client
Servicing
Reporting
One-point
client contact
30th May, 2012
IL&FS Securities Services Limited – Custodial Services
----------------------------------------------------------------------------------------------------------Scale
•Capability to handle
multi-class
assets across clients viz. Equity, Debt,
Mutual Funds etc.
•Clients can settle cash/securities
through multiple banks / depositories
• Only
Custodian
to
provide
recordkeeping at client level for Prime
brokerage Clients
•Customized, web- enabled Reports
downloadable in multiple formats
System
•Robust
platform with focus on
Straight through processing
•Customized reporting catering to each
client’s unique needs
The ISSL Custody
Advantage
People
Control Environment
•A highly talented workforce with
continuous focus on:
•-Regular assessment of staff through
competency assessment tests
•-Up-gradation of skills
•Retention of top talent staff with <3%
attrition of management staff
•Specialist Product team
•Parallel Quality Assurance review
•Documented SOPs ad Process specific
•Checklists
•Stratification controls per process
•Periodic Internal audit reviews
24
Mumbai, India
30th May, 2012
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Thank You
25
Mumbai, India
30th May, 2012

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