On Dec. 17, IND SEBI made modifications about regulatory arbitrage.
IND SEBI issued measures to address regulatory arbitrage in offshore derivative instruments (ODIs) and foreign portfolio investors (FPIs) with segregated portfolios.
The IND SEBI circular makes a number of modifications to Master circular for foreign portfolio investors, designated depository participants and eligible foreign investors.
Follows IND SEBI May 2024 foreign portfolio investor master circular, see #214132.
Modifications to Master Circular
IND SEBI modified aspects to certain requirements related to ODIs and FPIs with segregated portfolios, specifically provisions related to conditions for issuance of ODIs.
Namely, FPIs shall not issue ODIs with derivatives as reference/underlying and FPIs shall not hedge their ODIs with derivative positions on stock exchanges in India.
ODIs shall only have securities, other than derivatives, as underlying and shall be fully hedged with the same securities on a one-to-one basis, throughout the ODI tenure.
In addition, further provisions and details have been added with regards to mandating additional disclosures by ODI subscribers that fulfil the specified objective criteria.
Effectiveness
Depositories are advised to put in place appropriate mechanisms to ensure compliance with the circular within 5 months from the date of the circular, i.e. May 17, 2025.
