SEBI notifies FII limits for credit enhanced rupee bonds

Market regulator Securities and Exchange Board of India (SEBI) has directed depositories to monitor FII / QFI investments in credit enhanced bonds, so as to ensure that aggregate investments by FIIs / QFIs in such bonds do not exceed 90 per cent of the $5 billion limit, ie, $4.5 billion.

The Reserve Bank of India (RBI) has permitted FIIs and QFIs to invest in credit enhanced bonds, up to a limit of $5 billion within the overall limit of $51 billion earmarked for corporate debt.

Accordingly, SEBI has asked the custodians / qualified depository participants (QDPs) to provide on a daily basis, FII / QFI wise, and company wise buy / sell information and any other transaction or any related information to their respective depositories on a daily basis, ie, the same day on which the transaction is carried out, before the time stipulated by the depositories.

The depositories should jointly publish/ disseminate the aggregate investment of FIIs / QFIs in credit enhanced bonds to the public, on a daily basis.

When the aggregate investments of all the FIIs / QFIs reach 90 per cent of the investment limit, the depositories should publish notice informing the same on their web sites and no fresh purchases should be allowed without prior approval of the depositories.

The depositories should inform the custodians / QDPs and recognised stock exchanges having nationwide terminals.

The depositories should also inform the custodians / QDPs and stock exchanges when aggregate investments of all the FIIs / QFIs fall below 90 per cent of the investment limits.

For fresh purchases by FIIs / QFIs after the investment limit reaches 90 per cent, prior approval of the depositories should be obtained. 

The FII / QFI should make such request for prior approval to the concerned depository through the custodians / QDPs specifying therein the name of the FII / QFI, PAN and other unique identification number relating to that FII / QFI, by way of any mode of communication as specified by the depositories in consultation with each other.

The concerned depository should provide the details of prior approval requests received by it to the other depository.

After market hours, the depository should give approval to request for purchase on a first-come-first-served basis in co-ordination with the other depository, based on time of receipt of the prior approval requests by the depositories. The validity of the approval should be for the next two trading days.

In case the aggregate holding of the FII/QFI exceeds overall investment limit, the depositories should jointly notify the respective custodians / QDPs regarding the breach along with the names of the FII / QFI due to whom the limits have been breached.

For this purpose, the stock exchanges should provide the required information so as to enable the depositories to identify the transaction details of the FII / QFI, including the name of FII / QFI, PAN and / or other unique identification number relating to that FII / QFI, purchase quantity and time or any other information as may be required by the depositories.

In case the aggregate holding of the FII/QFIs exceeds overall investment limit for whatsoever reason, the FII / QFI due to whom the limit is breached should mandatorily divest excess holdings within seven working days of such breach being notified by depositories to the DP.

The custodians / QDPs should obtain necessary authorisation from the FII/QFI at the time of account opening for such divestment of excess holdings.