Markets regulator Securities and Exchange Board of India has clarified that reports of a ban on FPIs from issuing Overseas Derivative Instruments are incorrect.
In a statement early on Wednesday, SEBI clarified that FPIs are barred from issuing ODIs with derivative instruments as the underlying.
As on date, there are no ODIs with derivative instruments as the underlying, the regulator said.
SEBI further clarified that ODIs referencing cash market securities can still be issued.
The Circular In Question
The markets regulator had come out with a circular on Tuesday evening to announce changes affecting foreign portfolio investors and Offshore Derivative Instruments. The changes are aimed at getting both FPIs and ODIs at par in terms of regulation.
One major update is the prohibition on FPIs issuing ODIs based on derivatives. Additionally, FPIs must hedge ODIs using the same underlying securities on a one-to-one basis, throughout the tenure of the ODI. These new measures are aimed at reducing risks associated with complex financial instruments.
Another key change requires FPIs to collect complete disclosures of ODI subscribers, ensuring full transparency of the entities that hold economic or control interests in the subscribers. The regulations also specify that disclosures are mandatory for ODI subscribers with significant equity positions in India, particularly those holding more than Rs 25,000 crore in equity positions in Indian markets.
The rules also introduced exemptions for certain entities, including government-related investors, Exchange-Traded Funds, and pooled investment vehicles, with specific criteria regarding their equity exposure in India. These entities are not required to make the same level of detailed disclosures as others.
To ensure these regulations are followed, SEBI has mandated the creation of a standard operating procedure to validate compliance with the new rules. This SOP will be developed in consultation with depositories, custodians, and ODI issuing FPIs and will be made publicly available.
There are also transitional provisions for existing ODIs. FPIs will have up to a year to redeem ODIs with derivatives as their underlying assets. Furthermore, FPIs must adjust their positions to comply with new hedging requirements within the same timeframe.
The provisions of this circular will take effect immediately, with some exceptions, such as the mandatory disclosure rules, which will come into effect five months from the date of the circular.
. Read more on Markets by NDTV Profit.SEBI clarified that FPIs have been only barred from issuing ODIs with derivative instruments as the underlying. Read MoreMarkets, Notifications
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