DEBT ALLOCATION MECHANISM FOR FII

CIRCULAR NO. IMD/FIIC/1/2013, DATED 1-1-2013

1. SEBI vide circular IMD/FIIC/1/2012 dated January 3, 2012 had provided the facility of re-investment of up to two years from the date of the circular or to the extent of twice the size of the debt portfolio, to those FIIs and sub-accounts that had already acquired limits and/or invested in debt in the manner prescribed in the said circular. The facility of reinvestment period was not allowed for all new allocations of debt limits to FIIs/sub-accounts after the issuance of the said circular.

2. SEBI vide circular IMD/FIIC/22/2012 dated November 7, 2012 had stated that beginning January 1, 2014, the FIIs/Sub-Accounts could re-invest during each calendar year to the extent of 50% of their debt holdings at the end of the previous calendar year. It is clarified that from January 1, 2014 onwards, the circular IMD/FIIC/22/2012 dated November 7, 2012 will be applicable uniformly to all FIIs investing in debt securities irrespective of whether the FII had acquired limits/made investments before January 3, 2012 or not.

3. In light of the representations received and in order to provide operational flexibility to those FIIs/sub-accounts which did not hold any debt investment limits as on January 3, 2012 and purchased debt investment limits thereafter, it has been decided that they shall be allowed a cumulative re-investment facility to the extent of 50% of their maximum debt holding at any point of time during the calendar year 2013.

4. To illustrate, an example is given below:

An FII/Sub-Account “XYZ” did not hold any debt investment limits as on January 3, 2012. It had purchased fresh debt limits on January 7, 2012. The following table gives the particulars of XYZ’s transactions in debt securities:

Step

Buy

Sell

Current Holding

Maximum holding at any point of time during the calendar year

Value of sale which FII/SA can make without losing its investment limits

Cumulative sale by the FII/SA during the calendar year

Value of sale which can be further made by FII/SA without losing limit

1 (On Jan 7, 2012)

1000

0

1000

1000

500

0

500

2

0

500

500

1000

500

500

0

3

6000

0

6500

6500

3250

500

2750

4

1000

0

7500

7500

3750

500

3250

5

0

3000

4500

7500

3750

3500

250

6

600

0

5100

7500

3750

3500

250

7

5000

0

10100

10100

5050

3500

1550

8

0

1550

8550

10100

5050

5050

0

9

450

0

9000

10100

5050

5050

0

10

1100

0

10100

10100

5050

5050

0

All figures in INR cr

5. From January 1, 2014, the re-investment facility as indicated in the SEBI circular IMD/FIIC/22/2012 dated November 7, 2012 would be available during each calendar year to those FIIs which hold debt investments as on December 31 of the previous calendar year.

6. In respect of those FIIs which do not hold any debt investments as on December 31 of the previous calendar year, the re-investment facility given at Para 3 of this circular would be available during each calendar year.

7. It is further clarified that the re-investment facility for those FIIs/sub-accounts having debt limit prior to January 3, 2012, will remain available till December 31, 2013 in terms of the SEBI circular dated January 3, 2012.

8. The re-investment period, i.e. 5 working days for Government Debt and 15 working days for Corporate Debt shall remain the same as per the SEBI Circular IMD/FIIC/18/2010 dated November 26, 2010.

This circular shall come into effect immediately.

This circular is issued in exercise of powers conferred under SEBI Section 11(1) of the Securities and Exchange Board of India Act, 1992, to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.

A copy of this circular is available at the web page “F.I.I.” on our website www.sebi.gov.in. The custodians are requested to bring the contents of this circular to the notice of their FII clients.

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Category : SEBI (2722)
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