FII Regulations in India:
- The total investments in equity and equity related instruments (including fully convertible debentures, convertible portion of partially convertible debentures and tradable warrants) made by a Foreign Institutional Investor in India, whether on his own account or on account of his sub- accounts, should be at least seventy per cent of the aggregate of all the investments of the Foreign Institutional Investor in India, made on his own account and through his sub-accounts.
- The cumulative debt investment limit for FII investments in Corporate Debt is USD 15 billion. The amount was increased from USD 6 billion to USD 15 billion in March 2009.
- USD 8 billion will be allocated to the FIIs and Sub-Accounts through an open bidding platform while the remaining amount is allocated on a ‘first come first served’ basis subject to a ceiling of Rs.249 cr. per registered entity.
- The debt investment limit for FIIs in government debt in G-secs currently capped at $5 billion and cumulative investments under 2% of the outstanding stock of G-secs and no single entity can be allocated more than Rs. 1000 cr of the government debt limits.
With regard to investments in the secondary market, SEBI states that:
- The Foreign Institutional Investor is allowed to transact business only on the basis of taking and giving deliveries of securities bought and sold.
- Short selling in securities is not allowed. However, in December 2007, abroad regulatory framework enabling short selling by FIIs was put in place. Which stipulated that naked short selling was not permitted and settlement of securities sold short would be through a mechanism for borrowing of securities.
- FIIs are not permitted to short sell equity shares which are in the caution list of RBI.
- Equity shares can be borrowed by FIIs only for the purpose of delivery into short sale.
- No transactions on the stock exchange can be carried forward.
- Transaction of business in securities can be carried out only through stock brokers who has been granted a certificate by the Board.
- A Foreign institutional Investor or a sub-account having an aggregate of securities worth rupees ten crore or more, as on the latest balance sheet date, can settle their only through dematerialised securities.
- Securities have to be registered in the name of the Foreign Institutional Investor, if he is making investments on his own behalf or in his name on account of his sub-account, or in the name of the sub-account, in case he is investing on behalf of the sub-account.
- The purchase of equity shares of each company by a Foreign Institutional Investor investing on his own account cannot exceed ten percent of the total issued capital of that company.
- Investment by individual FIIs cannot exceed 10% of paid up capital. Investment by foreign registered as sub accounts of FII cannot exceed 5% of paid up capital. All FIIs and their subaccounts taken together cannot acquire more than 24% of the paid up capital of an Indian Company. An Indian Company can raise the 24% ceiling to the Sectoral Cap / Statutory Ceiling by passing a resolution by its Board of Directors followed by passing a Special Resolution to that effect by their General Body.
- For FIIs investing in the equity shares of a company on behalf of his sub-accounts, the investment on behalf of each such sub-account cannot exceed ten percent of the total issued capital of that company.
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:
- 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 is 20% of the market wide limit.
- For stocks in which the market wide position limit is greater than Rs. 250 Cr, the FII position limit in such stock is Rs. 50 Cr.
FII Position limits in Index options contracts
FII position limit in all index options contracts on a particular underlying index is Rs. 250 Crore or 15 % of the total open interest of the market in index options, whichever is higher, per exchange. This limit is applicable on open positions in all option contracts on any underlying index.
FII Position limits in Index futures contracts
FII position limit in all index futures contracts on a particular underlying index is Rs. 250 Crore or 15 % of the total open interest of the market in index futures, whichever is higher, per exchange.
This limit is applicable on open positions in all futures contracts on a particular underlying index. In addition to the above, FIIs can take exposure in equity index derivatives subject to the conditions that :
- Short positions in index derivatives (short futures, short calls and long puts) cannot exceed (in notional value) the FII’s holding of stocks.
- Long positions in index derivatives (long futures, long calls and short puts) can not exceed (in notional value) the FII’s holding of cash, government securities, TBills and similar instruments.
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 is US $ 100 million.
- In addition to the above, FIIs can 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 is the higher of: Rs. 100 Cr Or 15% of total open interest in the market in exchange traded interest rate derivative contracts.