Fidelity was fined heavily for breaching FPI rules and trading post-merger without required registration.
The Securities and Exchange Board of India (SEBI) on Friday imposed a stern penalty of Rs 1 crore on Fidelity Management & Research Company (FMRC) for infringing the Foreign Portfolio Investor (FPI) rules. The allegations relate to the merger of FMRC with its affiliate, Fidelity Investments Money Management (FIMM), which led to a series of regulatory missteps in the Indian securities market.
Fidelity Flouts FPI Regulations
A designated depository participant, JP Morgan Chase (JPMC), first notified Sebi about the delayed change in material information of FIMM in August 2021. FIMM, which had been registered as an FPI, underwent a merger with FMRC, causing the former to cease. However, the surviving entity, FMRC, proceeded to operate in the Indian securities market under FIMM’s name, accounts, and FPI registration, without obtaining its own FPI registration.
Lackadaisical Approach and Continued Trading
FMRC’s lax attitude in providing the necessary information regarding the material change was highlighted by Sebi’s Adjudicating Officer, Asha Shetty. The delay extended for a period of roughly a year and a half. Despite FIMM’s merger into FMRC, the latter continued its securities trading. Even being aware of the lack of FPI registration, FMRC carried out FPI activities to the tune of Rs 8.79 crore from the date FIMM ceased to exist. This consequently nullified the FPI status. It was also revealed that FMRC made 183 sell transactions and 344 purchase transactions during the period of January 2020 to July 2021.
Compulsory Information Disclosure
Shetty also emphasized that the necessary information wasn’t disclosed by FMRC’s volition, but was made known through a letter dated July 28, 2021, following the account blockade by JPMC on July 20, 2021. The blatant failure of FMRC to provide a change in material information, along with continued trading sans a valid FPI registration, signified a gross violation of the governing norms.
JP Morgan’s Settlement with SEBI
In related news, JP Morgan Chase resolved its issues with the market regulator Sebi in a case concerning the alleged violations of FPI rules. JP Morgan settled the case by paying a sum of Rs 22.10 lakh towards the settlement amount.
