Foreign Investment in Securities Market Infrastructure Companies
Current & verified — this is the latest version
Source: Reserve Bank of India · RBI/2006-07/218 · issued 22 Dec 2006 · ~2 min read
Quick answerRBI now allows foreign investment up to 49% in stock exchanges, depositories, and clearing corporations, with separate caps of 26% for FDI and 23% for FII, subject to SEBI rules and FIPB approval for FDI.
The rule, in the simplest words
Foreign investors can own up to 49% of Indian stock exchanges, depositories, and clearing corporations, but only 26% can be from FDI (foreign direct investment) and 23% from FII (foreign institutional investment).
FDI (foreign direct investment) needs prior approval from FIPB (Foreign Investment Promotion Board) before it can be made.
FII (foreign institutional investment) is allowed only through purchases in the secondary market (buying existing shares, not creating new ones).
AD Category‑I banks (authorised dealer banks) must tell their customers about these limits and make sure the caps are not exceeded.
Banks must follow SEBI (Securities and Exchange Board of India) rules and keep records to comply with FEMA (Foreign Exchange Management Act) provisions.
How it plays out — a real example
Rohit, an AD Category‑I banker in Mumbai, receives a request from a foreign fund to buy shares in the National Stock Exchange. He first checks that the fund’s purchase will not push the total foreign ownership above the 23% FII limit and confirms the shares are being bought on the secondary market. Since the request is for an FII, no FIPB approval is needed, and Rohit records the transaction as per SEBI and FEMA guidelines, feeling confident that he’s helping bring foreign capital while staying within the rules.
What changed
RBI amended the Foreign Direct Investment Scheme to permit foreign investment in infrastructure companies in securities markets, including stock exchanges, depositories, and clearing corporations. The total foreign investment cap is set at 49%, with a separate FDI limit of 26% and FII limit of 23%. FDI requires prior FIPB approval, while FII is allowed only through secondary market purchases.
What it means for you
Banks acting as AD Category-I must update their compliance frameworks to handle these new caps and approval requirements for foreign investments in securities market infrastructure. This opens a structured channel for foreign capital into Indian market utilities, potentially enhancing liquidity and global integration. Lenders facilitating such investments need to ensure adherence to SEBI regulations and FIPB approval processes.
What you must do
Inform all constituents and customers about the new foreign investment caps and conditions for securities market infrastructure companies.
Update internal systems to monitor and enforce the separate FDI (26%) and FII (23%) limits within the overall 49% cap.
Ensure that any FDI transactions in these entities are processed only after verifying prior FIPB approval.
Restrict FII investments in these companies to secondary market purchases only, as per the circular.
Coordinate with SEBI regulations and maintain records for compliance with FEMA provisions.
Who it affects
AD Category-I banks, Foreign investors (FDI and FII), Stock exchanges, depositories, and clearing corporations, SEBI and FIPB
❓ Common questions
What is the total foreign investment cap allowed in securities market infrastructure companies?
The total foreign investment cap is 49%, with a separate FDI limit of 26% and FII limit of 23%.
Do FII investments require prior approval under this circular?
FII investments are allowed only through secondary market purchases and do not require FIPB approval, but must comply with SEBI regulations.
Which entities are covered under this circular?
The circular covers infrastructure companies in securities markets, specifically stock exchanges, depositories, and clearing corporations.
📜 Read the original circular — full text as issued by RBI
RBI/2006-07/218
A. P. (DIR Series) Circular No. 25
December 22, 2006
To,
All Category – I Authorised Dealer Banks
Madam / Sir,
Foreign investment in Infrastructure Companies
in Securities Markets - Amendment to the Foreign Direct Investment Scheme
Attention of Authorised Dealer
Category - I (AD Category - I) banks is invited to Schedule I to Foreign Exchange
Management (Transfer or Issue of Security by a Person Resident Outside India)
Regulations, 2000, notified vide FEMA Notification No. 20/2000-RB dated May
3, 2000, as amended from time to time.
2. It has been decided in consultation
with Government of India to allow foreign investment in Infrastructure Companies
in Securities Markets, namely stock exchanges, depositories and clearing corporations,
in compliance with SEBI Regulations and subject to the following conditions
:
i) Foreign investment upto 49
per cent will be allowed in these companies with a separate Foreign Direct Investment
(FDI) cap of 26 per cent and Foreign Institutional Investment (FII) cap of 23
per cent;
ii) FDI will be allowed with specific
prior approval of FIPB; and
iii) FII will be allowed only
through purchases in the secondary market.
3. AD Category – I banks may bring
the contents of this circular to the notice of their constituents and customers
concerned.
4. Necessary amendments to the Foreign
Exchange Management (Transfer or Issue of Security by a Person Resident Outside
India) Regulations, 2000 are being issued separately.
5. The directions in this circular
have been issued under Sections 10(4) and 11(1) of Foreign Exchange Management
Act, 1999 (42 of 1999) and is without prejudice to permissions / approvals,
if any, required under any other law.
Yours faithfully,
(Salim Gangadharan)
Chief General Manager-in-Charge
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2006-07/218 · issued 22 Dec 2006. The plain-English explanation above is BankPulse’s own independent summary.
Coordinate with SEBI regulations and maintain records for compliance with FEMA provisions.
💻 IT / Systems
Update internal systems to monitor and enforce the separate FDI (26%) and FII (23%) limits within the overall 49% cap.
📜 Compliance
Inform all constituents and customers about the new foreign investment caps and conditions for securities market infrastructure companies.
Ensure that any FDI transactions in these entities are processed only after verifying prior FIPB approval.
Restrict FII investments in these companies to secondary market purchases only, as per the circular.
Grouped from the action items above — a single circular may involve more than one team.
Worked example & action-note template
Example: if you are a Compliance officer at a bank this circular applies to (AD Category-I banks, Foreign investors (FDI and FII), Stock exchanges, depositories, and clearing corporations, SEBI and FIPB), your first concrete step on “Foreign Investment in Securities Market Infrastructure Companies” is: “Inform all constituents and customers about the new foreign investment caps and conditions for securities market infrastructure companies.” (RBI issued this 22 Dec 2006).
Circular: RBI/2006-07/218 -- Foreign Investment in Securities Market Infrastructure Companies
Issued: 22 Dec 2006
Action required: Inform all constituents and customers about the new foreign investment caps and conditions for securities market infrastructure companies.
Action required: Update internal systems to monitor and enforce the separate FDI (26%) and FII (23%) limits within the overall 49% cap.
Action required: Ensure that any FDI transactions in these entities are processed only after verifying prior FIPB approval.
Action required: Restrict FII investments in these companies to secondary market purchases only, as per the circular.
Action required: Coordinate with SEBI regulations and maintain records for compliance with FEMA provisions.
Owner: ____________ Target date: ____________
Board/committee approval needed? Y / N
Evidence filed in compliance register on: ____________
Built only from this circular’s own published fields — not legal advice; always confirm against the official RBI source.
💬 Banker Discussion
Discuss this circular with fellow bankers — reply, upvote what helps, report what doesn’t belong. Be professional; no client data. Views are the commenter’s own, not BankPulse’s.
BankPulse Compliance Evidence Pack — generated 05 Aug 2026 · status cross-checked against RBI’s official withdrawal register (refreshed weekly). Official RBI source: https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=3221&Mode=0 — Plain-English summary by BankPulse (bankpulse.ai), reviewed by our expert reviewer, CA Amit Jain. Independent platform, not affiliated with the Reserve Bank of India; is our own plain-English paraphrase, not RBI’s original wording.
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