FII - Basic info

t Note: These FAQs are prepared with a view to help FII applicants. FII registration and investment are mainly governed by SEBI (FII) Regulations, 1995. In case of ambiguity, the readers are requested to consult the Regulations.

DEFINITIONS

Q1. Who is a Foreign Institutional Investor (FII)?

Ans. FII means an entity established or incorporated outside India which proposes to make investment in India.

Q2. What is a sub-account?

Ans. Sub-account includes those foreign corporates, foreign individuals, and institutions, funds or portfolios established or incorporated outside India on whose behalf investments are proposed to be made in India by a FII.

Q3. What is a Designated Bank?

Ans. Designated Bank means any bank in India which has been authorized by the Reserve Bank of India to act as a banker to FII.

Q4. Who is a Domestic Custodian?

Ans. Domestic Custodian means any entity registered with SEBI to carry on the activity of providing custodial services in respect of securities.

Q5. What is a Broad Based Fund?

Ans. Broad Based Fund means a fund established or incorporated outside India, which has at least twenty investors with no single individual investor holding more than 10% shares or units of the fund.

Provided that if the fund has institutional investor(s) it shall not be necessary for the fund to have twenty investors.

Provided further that if the fund has an institutional investor holding more than 10% of shares or units in the fund, then the institutional investor must itself be broad based fund.

FII REGISTRATION

Q6. Who can get registered as FII?

Ans. Following entities / funds are eligible to get registered as FII:

1. Pension Funds
2. Mutual Funds
3. Insurance Companies
4. Investment Trusts
5. Banks
6. University Funds
7. Endowments
8. Foundations
9. Charitable Trusts / Charitable Societies

Further, following entities proposing to invest on behalf of broad based funds, are also eligible to be registered as FIIs:

1. Asset Management Companies
2. Institutional Portfolio Managers
3. Trustees
4. Power of Attorney Holders

Q7. What are the parameters on which SEBI decides FII applicants' eligibility?

Ans.

1. Applicant's track record, professional competence, financial soundness, experience, general reputation of fairness and integrity. (The applicant should have been in existence for at least one year)
2. whether the applicant is registered with and regulated by an appropriate Foreign Regulatory Authority in the same capacity in which the application is filed with SEBI
3. Whether the applicant is a fit & proper person.

Q8. Which form needs to be filled in when applying for FII registration?

Ans. "Form A" as prescribed in SEBI (FII) Regulations, 1995.

Q9. Which documents need to be sent with "Form A"?

Ans.

1. Certified copy of relevant clauses (clauses permitting the stated activities) of Memorandum of Association, Article of Association or Article of Incorporation.
2. Audited financial statement and annual report for the last one year (period covered should not be less than twelve months

Q10. How much is the fee for registration as FII?

Ans. US $ 5,000.

Q11. When is the registration fee payable?

Ans. At the time of submitting the application for registration.

Q12. What is the mode of payment?

Ans. Demand Draft in favour of "Securities and Exchange Board of India" payable at New York

Q13. How many days it takes to get registered as FII?

Ans. SEBI generally takes seven working days in granting FII registration. However, in cases where the information furnished by the applicants is incomplete, seven days shall be counted from the days when all necessary information sought, reaches SEBI.

In cases where the applicant is bank and subsidiary of a bank, SEBI seeks comments from the Reserve Bank of India (RBI). In such cases, 7 working days would be counted from the day no objection is received from RBI.

Q14. What is the registration process for FII?

Ans.

Q15. What is the validity period of FII registration?

Ans. The FII registration is valid for 5 years. After expiry of 5 years, the registration needs to be renewed.

Q16. What is the process of renewal?

Ans. Same as initial registration. Along with "Form A" and all the relevant documents, the applicants are required to fill in additional form (Annexure 1) while applying for renewal.

Q17. Is there any renewal fee?

Ans. Yes, US $ 5,000 needs to be paid for renewal of FII registration.

Q18. When the application for renewal should be submitted

Ans. Three months before expiry of the FII registration.

Q19. What are 100 % debt FIIs/sub-accounts, and what is the process for their registration?

Ans. 100 % debt FIIs are debt dedicated FIIs which invest in debt securities only. The procedure for registration of FII/sub-account, under 100% debt route is similar to that of normal funds besides a clear statement by the applicant that it wishes to be registered as FII/sub-account under 100% debt route.

Q20. Where the application for FII registration should be sent?

Ans. The FII registration application should be sent to:

Securities and Exchange Board of India
Division of FII & Custodian
Mittal Court "B" Wing, First Floor
224, Nariman Point
Mumbai 400 021
India

Note: In case the applicant is a 'Bank' or "Subsidiary of a Bank" then the application form and relevant documents need to be submitted in duplicates.

SUB-ACCOUNT REGISTRATION

Q21. Who can get registered as sub-account?

Ans.

1. Institution or funds or portfolios established outside India, whether incorporated or not.
2. Proprietary fund of FII.
3. Foreign Corporates
4. Foreign Individuals

Q22. Who need to apply for sub-account registration?

Ans. The FII should apply on the behalf of the Sub-account. Both the FII and the Sub-account are required to sign the Sub-account application form.

Q23. Which form needs to be filled when applying for sub-account registration?

Ans. "Annexure B" to "Form A" (FII application form).

Q24. What documents need to be sent with Annexure A?

Ans. None

Q25. How much is the fee for sub-account registration?

Ans. US $ 1,000

Q26. When is the registration fee payable?

Ans. At the time of submitting the application.

Q27. What is the mode of payment?

Ans. Demand Draft in the name of "Securities and Exchange Board of India" payable at New York

Q28. How many days it takes to get a sub-account registered?

Ans. SEBI generally takes three working days in granting FII registration. However, in cases where the information furnished by the applicants is incomplete, three days shall be counted from the days when all necessary information sought, reaches SEBI.

Q29. What is the validity period of sub-account registration?

Ans. The validity of sub-account registration is co-terminus with the FII registration under which it is registered.

Q30. What is the process of renewal of sub-account?

Ans. Same as initial registration.

Q31. Is there renewal fee?

Ans. Yes, US $ 1,000

Q32. Can OCBs / NRIs permitted to get registered as FII/sub-account?

Ans. No, they are not permitted.

POST-REGISTRATION PROCESSES

Q33. What is the procedure in case the FII/sub-account changes its name?

Ans. If a registered FII/sub-account undergoes name change, then the FII need to promptly inform SEBI about the change. It should also mention the reasons for the name change and give an undertaking that there has been no change in beneficiary ownership.

In case of name change of FII, the request should be accompanied with documents from home regulator and registrar of the company evidencing approval of name change, and the original FII registration certificate issued by SEBI should be sent back for necessary amendment.

Q34. What is the procedure for transferring a sub-account from one FII to another?

Ans. The FII to whom the Sub-account is proposed to be transferred has to send a request along with a declaration that it is authorized to invest on behalf of the Sub-account. The transferor FII should also submit a No-objection certificate.

Q35. What is the procedure for change of domestic custodian?

Ans. The FII should send a request, along with no-objection certificate from existing domestic custodian, for change in domestic custodian.

Q36. Can FII/sub-account registration be cancelled on request?

Ans. Yes, the FII would be required to send a request for cancellation of its registration or registration of its Sub-account/s clearly mentioning the name and registration number of the entity. The FII should ensure that it / Sub-account has nil cash / securities holdings.

Q37. What if the FII does not renew its/sub-account's registration?

Ans. The registration of the FII / Sub-account would get expired at due date and it would not be allowed to trade in Indian securities markets. If it is not interested in renewal but has certain residual assets, it can apply for disinvestment in terms of Circular No. FITTC/CUST/12/2001 dated June 04, 2001 and abide by the guidelines specified in this regard.

INVESTMENT OPPORTUNITIES

Q38. Which financial instruments are available for FII investments?

Ans.

1. 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;
2. Units of mutual funds;
3. Dated Government Securities;
4. Derivatives traded on a recognized stock exchange;
5. Commercial papers.

Q39. What are the investment limits on equity investments by FII/sub-account?

Ans.

1. FII, on its own behalf, shall not invest in equity more than 10% of total issued capital of an Indian company.
2. Investment on behalf of each sub-account shall not exceed 10% of total issued capital of an India company.
3. For the sub-account registered under Foreign Companies/Individual category, the investment limit is fixed at 5% of issued capital.

These limits are within overall limit of 24% / 49 % / or the sectoral caps a prescribed by Government of India / Reserve Bank of India.

Q40. What are the investment limits on debt investments by FII/sub-account?

Ans. The FII investments in debt securities are governed by the policy if the Government of India. Currently following limits are in effect:

• For FII investments in Government debt, currently following limits are applicable:

100 % Debt Route	US $ 1.55 billion
70 : 30 Route	US $ 200 million
Total Limit	US $ 1.75 billion

• For corporate debt the investment limit is fixed at US $ 500 million.

Q41. What other investment limits are there?

Ans.

Normal FII (70:30 Route)	100% Debt FII
Total investment in equity and equity related instruments shall not be less than 70% of aggregate of all investments.	100% investment shall be made in debt security only.

Q42. In whose name should the securities be registered?

Ans.

1. In the name of FII when making investments on its own behalf
2. In the name of sub-account when making investments on behalf of Sub-account
3. In the name of "FII a/c sub-account" when making investments on behalf of Sub-account.

DERIVATIVES POSITION LIMITS

Q43. What are the restrictions on investment in derivatives?

Ans.

2. The FII position limits in a derivative contracts (Individual Stocks)

The FII position limits in a derivative contract on a particular underlying stock i.e. stock option contracts and single stock futures contracts are:

o For stocks in which the market wide position limit is less than or equal to Rs. 250 Cr, the FII position limit in such stock shall be 20% of the market wide limit.

o For stocks in which the market wide position limit is greater than Rs. 250 Cr, the FII position limit in such stock shall be Rs. 50 Cr.

2. FII Position limits in Index options contracts

FII position limit in all index options contracts on a particular underlying index shall be Rs. 250 Crore or 15 % of the total open interest of the market in index options, whichever is higher, per exchange.

This limit would be applicable on open positions in all option contracts on a particular underlying index.

3. FII Position limits in Index futures contracts:

FII position limit in all index futures contracts on a particular underlying index shall be Rs. 250 Crore or 15 % of the total open interest of the market in index futures, whichever is higher, per exchange.

This limit would be applicable on open positions in all futures contracts on a particular underlying index.

In addition to the above, FIIs shall take exposure in equity index derivatives subject to the following limits:

i. Short positions in index derivatives (short futures, short calls and long puts) not exceeding (in notional value) the FII's holding of stocks.

ii. Long positions in index derivatives (long futures, long calls and short puts) not exceeding (in notional value) the FII's holding of cash, government securities, T-Bills and similar instruments.

2. FII Position Limits in Interest rate derivative contracts

At the level of the FII

The notional value of gross open position of a FII in exchange traded interest rate derivative contracts shall be:

1. US $ 100 million.
2. In addition to the above, the FII may take exposure in exchange traded in interest rate derivative contracts to the extent of the book value of their cash market exposure in Government Securities.

At the level of the sub-account

The position limits for a Sub-account in near month exchange traded interest rate derivative contracts shall be higher of:

• Rs. 100 Cr

or

• 15% of total open interest in the market in exchange traded interest rate derivative contracts.

OFFSHORE DERIVATIVES/PARTICIPATORY NOTES

Q44. Can FII/sub-account issue Offshore Derivatives / Participatory Notes?

Ans. Yes, FII/sub-account may issue, deal in or hold off-shore derivative instruments such as Participatory Notes, Equity Linked Notes or any other similar instruments against underlying securities, listed or proposed to be listed on any stock exchange in India.

Q45. Who can subscribe to/invest in Participatory Notes?

Ans.

1. Any entity incorporated in a jurisdiction that requires filing of constitutional and/or other documents with a registrar of companies or comparable regulatory agency or body under the applicable companies legislation in that jurisdiction;
2. Any entity that is regulated, authorised or supervised by a central bank, such as the Bank of England, the Federal Reserve, the Hong Kong Monetary Authority, the Monetary Authority of Singapore or any other similar body provided that the entity must not only be authorised but also be regulated by the aforesaid regulatory bodies;
3. Any entity that is regulated, authorised or supervised by a securities or futures commission, such as the Financial Services Authority (UK), the Securities and Exchange Commission (Sub-account), the Commodities Futures Trading Commission (Sub-account), the Securities and Futures Commission (Hong Kong or Taiwan), Australian Securities and Investments Commission (Australia) or other securities or futures authority or commission in any country , state or territory ;
4. Any entity that is a member of securities or futures exchanges such as the New York Stock Exchange (Sub-account), London Stock Exchange (UK), Tokyo Stock Exchange (Japan), NASD (Sub-account) or other similar self-regulatory securities or futures authority or commission within any country, state or territory provided that the aforesaid mentioned organizations which are in the nature of self regulatory organizations are ultimately accountable to the respective securities / financial market regulators.
5. Any individual or entity (such as fund, trust, collective investment scheme, Investment Company or limited partnership) whose investment advisory function is managed by an entity satisfying the criteria of (a), (b), (c) or (d) above.

Q46. What are the reporting Requirements for the FII / Sub-account issuing

Participatory Notes?

Ans.

1. FII/sub-account who issue/renew/cancel/redeem PNs, require to report on Monthly basis. The report should reach SEBI by the 7th day of the following month.
2. The FII/sub-account merely investing/subscribing in/to the Participatory Notes/Access Products/Offshore Derivative Instruments or any such type of instruments/securities with underlying Indian market securities are required to report on quarterly basis (Jan-Mar, Apr-Jun, Jul-Sep and Oct-Dec).
3. FIIs/sub-accounts who do not issue PNs but have trades/holds Indian securities during the reporting quarter (Jan-Mar, Apr-Jun, Jul-Sep and Oct-Dec) require to submit 'Nil' undertaking on a quarterly basis.
4. FIIs/sub-accounts who do not issue PNs and do not have trades/ holdings in Indian securities during the reporting quarter. (Jan-Mar, Apr-Jun, Jul-Sep and Oct-Dec): No reports required for that reporting quarter.

Q47. How to send report on Participatory Notes?

Ans.

• The format for reporting on issuance/ renewal / redemption of the Participatory Notes is prescribed as per "Annexure B" in our Circular No. IMD/CUST/15/2004 dated April 02, 2004 [The reporting format is downloadable from our website www.sebi.gov.in ]
• The reports should be e-mailed only to ODIreporting@sebi.gov.in
• In case of Nil-reports, 'Annexure B' is not required. Instead the FII on behalf of its Sub-account should submit the undertaking prescribed in our circular No. IMD/CUST/9/2003 dated November 20 , 2003
• The reporting should be done in MS Excel format only

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