SEBI Imposes ₹50 Lakh Penalty on Three FPIs for Violating Market Regulations

The Securities and Exchange Board of India (SEBI) has imposed fines totaling ₹50 lakh on three foreign portfolio investors (FPIs) for surpassing the permissible limits on short-term investments in debt securities.

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Details of the Penalty

In three distinct orders issued on Monday, SEBI levied a penalty of ₹20 lakh each on Nexpact Ltd and AIRD Investment Commercial LLC, while Aviator Global Investment Fund faced a fine of ₹10 lakh. These actions follow SEBI’s inspections of custodian Orbis Financial Corporation for the financial year 2021-22.

During the review, the regulator found that the investments made by the three FPIs did not align with the prescribed limits concerning residual maturity in debt securities as of March 31, 2022.

Regulatory Examination and Findings

Subsequently, SEBI conducted an examination covering the period from April 2018 to November 2023 to assess whether the entities complied with FPI regulations and Reserve Bank of India (RBI) guidelines.

As per RBI norms, FPIs must ensure that short-term investments do not exceed 30% of their total investment in any category, necessitating strict adherence to these limits.

SEBI’s investigation revealed that AIRD Investment Commercial LLC breached the 30% short-term investment threshold multiple times, with violations persisting from December 19, 2021, to November 2023. The regulator noted that the firm exceeded the limit for 562 days—almost two years.

Similarly, Nexpact Ltd remained in breach of the cap for 586 days, from December 2021 to July 2023. While the entity admitted that the violation occurred due to oversight and was promptly rectified, SEBI deemed the infraction repetitive and prolonged.

Meanwhile, Aviator Global Investment Fund failed to comply with the prescribed short-term investment limit for 373 days between September 2021 and October 2022.

Implications for the Market

The penalties imposed by SEBI highlight the importance of regulatory compliance for foreign investors participating in India’s debt markets. The restrictions on short-term investments in debt securities are designed to prevent excessive volatility and ensure financial stability.

In its orders, SEBI emphasized that compliance with investment limits is essential for maintaining market discipline and investor confidence. The regulator noted that repeated breaches, even if unintentional, could disrupt market equilibrium and affect overall financial integrity.

Expert Opinions and Future Outlook

Market analysts believe that this action serves as a warning to other FPIs, reinforcing the need for stringent internal monitoring mechanisms to ensure compliance with regulatory guidelines. Experts suggest that foreign investors should implement more robust risk management frameworks to avoid such violations in the future.

Additionally, SEBI’s intervention underscores its commitment to overseeing the proper functioning of the securities market. The regulator has been actively enhancing its surveillance mechanisms to detect and address regulatory breaches promptly.

Going forward, FPIs are likely to exercise greater caution in managing their investment portfolios to remain within prescribed limits. The penalties also signal that SEBI will continue to take strict action against any violations that compromise the integrity of India’s financial markets.