Sebi permits off market transfers to ease fund relocation to IFSC

Sebi regulations at present do not allow cashless transfers of securities between FPIs with different permanent account numbers

The Securities and Exchange Board of India (Sebi) has allowed the off-market transfer of securities with a view to make it easier for foreign funds to relocate to the International Financial Services Centre (IFSC) in Gujarat. 

At present, Sebi regulations do not allow the cashless transfer of securities between foreign portfolio investors (FPIs) with different permanent account numbers.

“It has been decided that an FPI (‘original fund’ or its wholly-owned special purpose vehicle) may approach its DDP (designated depository participant) for approval of a one-time ‘off-market’ transfer of its securities to the ‘resultant fund’. The DDP, after appropriate due diligence, may accord its approval for a one-time ‘off-market’ transfer of securities for such relocation,” Sebi said on Tuesday.

“This is a welcome change,” said Suresh Swamy, a chartered accountant. “The cost of relocation to IFSC will certainly come down and make it a more attractive destination.” 

Foreign funds that are registered with Sebi as an FPI and propose to relocate to IFSC need a fresh FPI license. Additionally they need to transfer the securities from their old demat account to the new account, which is tagged to IFSC FPI.

"All FPIs have to carry out the transfer of securities by selling from the old demat account on the exchange and buying the securities in the new demat account. This was irrespective of whether it was on account of merger or relocation. The current regulations only permit ‘off-market’ transfers of securities in case of multi investment management structure, where beneficial owners are the same and they have a common PAN,” Swamy said. 

An amendment to the Finance Bill earlier this year had allowed a wholly-owned special purpose vehicle (SPV) of an offshore fund to transfer securities to an IFSC fund (resultant fund) in Gujarat, while also enabling the IFSC fund to issue units either to the investors in the offshore fund or to the offshore fund itself.  

This was to give much-needed flexibility to the fund manager to either shift the entire fund structure to the IFSC or to adopt a master-feeder structure.

Many two-tier fund structures such as Luxembourg-Mauritius-India or Cayman-Mauritius-India are likely to be the first ones to consider relocation to IFSC because it’s relatively easy to implement without affecting the ultimate investors in the global fund, according to experts.