Tag Archives: IFSC

foreign portfolio investors

SEBI circular dated 1st June, 2021 allowing a one off, “off-market” transfer of securities by foreign portfolio investors for transferring to IFSC at Gift City, Ahmedabad, which gives substantial tax benefits as per the Finance Act, 2021. Gist of circular follows:

1. The Finance Act, 2021 provides tax incentives for relocating foreign funds to International Financial Services Centre (IFSC) in order to make the IFSC in GIFT City a global financial hub. 

2. In view of the above objective and to further facilitate such ‘relocation’, it has been decided that a FPI (‘original fund’ or its wholly owned special purpose vehicle) may approach its DDP for approval of a one-time ‘off-market’ transfer of its securities to the ‘resultant fund’. The terms ‘original fund’, ‘relocation’ and ‘resultant fund’ will have the same meaning as assigned to them under the Finance Act, 2021. 

3. The DDP after appropriate due diligence may accord its approval for a one-time ‘offmarket’ transfer of securities for such relocation. 

4. Relocation request will imply that the FPI has deemed to have applied for surrender of its registration and the DDP may be guided by the guidelines pertaining to surrender of FPI registration. 

5. The ‘off-market’ transfer shall be allowed without prejudice to any provisions of tax laws and FEMA. 6. Para 3, Part C of SEBI Circular No. IMD/FPI&C/CIR/P/2019/124 dated November 05, 2019 stands modified to the extent of para 2 above. 

https://www.sebi.gov.in/legal/circulars/jun-2021/-off-market-transfer-of-securities-by-fpi_50380.html

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remittance to IFSC under LRS

RBI has vide its circular dated 16th February, 2021 allowed resident individuals to invest in securities issued in the International Financial Services Centre (IFSC) through the Liberalised Remittance Scheme route. There are some conditions to be fulfilled, which are :

  1. The remittance shall be made only for making investments in IFSCs in securities, other than those issued by entities/companies resident (outside IFSC) in India.
  2. Resident Individuals may also open a non interest bearing Foreign Currency Account (FCA) in IFSCs, for making the above permissible investments under LRS. Any funds lying idle in the account for a period upto 15 days from the date of its receipt into the account shall be immediately repatriated to domestic INR account of the investor in India.
  3. Resident Individuals shall not settle any domestic transactions with other residents through these FCAs held in IFSC.

Further there are some compliances to be done by the authorised dealers in such transactions which are :

AD Category – I banks, while allowing such remittances, shall ensure compliance with all other terms and conditions, including reporting requirements prescribed under the Scheme. It may be noted that any person resident in India (outside IFSC) entering into any transaction with a person/entity in IFSC shall only be governed by regulations/directions and rules issued/notified by the Reserve Bank of India and the Government of India respectively under Foreign Exchange Management Act (FEMA), 1999. Further, compounding of any contravention of FEMA provision by such person resident in India shall be dealt by the Reserve Bank of India in accordance with the extant instructions/provisions on compounding of contraventions under FEMA.

Copy of the circular can be found here

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market access to IFSC based stock exchanges

The International Financial Services Centre Authority has issued guidelines on providing market access to investors through authorised persons based in foreign jurisdictions. Gist of the circular is given below:

IFSCA has received representations from Stock Exchanges and market participants based in IFSC on permitting market access in IFSC through Authorized Persons based in jurisdictions overseas. Subsequent to discussions and deliberations, with a view to expand the depth and
reach of the market for exchange traded securities in IFSC, it has been decided to permit stock brokers/ trading members (registered with either IFSCA or SEBI or both) of the stock exchanges to provide market access to investors through Authorized Persons based in foreign jurisdictions. The regulatory framework governing the market access through Authorized
Persons is enclosed at Annexure-1.

  1. The stock exchanges and stock brokers shall have the operational flexibility to prescribe requirements/guidelines, in addition to those stated in the said framework, as they deem fit, in the interest of investors and the market. However, no relaxations shall be granted by them
    in the framework specified by the Authority.
  2. The Stock Exchanges shall make the necessary amendments to their by-laws, rules and regulations to implement the said framework.
  3. This circular is issued in exercise of powers conferred by section 12 of the International Financial Services Centres Authority Act, 2019 to develop and regulate the financial products, financial services and financial institutions in the International Financial Services Centres.
  4. A copy of this circular is available on the website of the International Financial Services Centres Authority at http://www.ifsca.gov.in
  5. IFSCA – Regulatory framework for Authorized Persons 1 | Page
    Annexure-1
    Regulatory Framework for Market Access to IFSC based Stock Exchanges through Authorized Persons
  6. Who is an “Authorized Person”?
    Any person – individual, partnership firm, LLP or body corporate – who is appointed as such by a stock broker /trading member and who provides access to the trading platform of a stock exchange as an agent of the stock broker.
  7. Appointment of Authorized Person
    A stock broker may appoint one or more Authorized Person(s) after obtaining specific prior approval from the stock exchange concerned for each such person.
  8. Procedure for Appointment
    a) The stock broker shall select a person in compliance with the criteria laid down by the Exchange and this framework for appointment as an Authorized Person and forward the application of the person to stock exchange for approval.
    b) On receipt of the aforesaid application, the stock exchange
    i. shall accord approval on satisfying itself that the person is eligible for
    appointment as Authorized Person, or
    ii. shall refuse approval on satisfying itself that the person is not eligible for appointment as Authorized Person
  9. Eligibility Criteria
    I. An individual is eligible to be appointed as Authorized Person if he:
    a) is a citizen of India or a citizen of any of the Financial Action Task Force (FATF) compliant jurisdictions;
    b) is not less than 18 years of age;
    c) has not been convicted of any economic/financial offence in his home
    jurisdiction or overseas;
    d) has a good reputation and character;
    e) is a graduate from a recognized institution in the jurisdiction of his
    citizenship; and
    f) the approved users and / or sales personnel of the Authorized Person shall have the necessary certifications, prescribed by the stock exchanges, at all points of time
    II. A partnership firm, LLP or a body corporate is eligible to be appointed as an Authorized Person if;
    a) it is incorporated in the IFSC or in any of the FATF compliant jurisdictions or which is governed by an FATF style regional body
    b) if all the partners or directors, as the case may be, comply with the
    requirements contained in clause I above
    c) the object clause of the partnership deed or of the Memorandum of
    Association contains a clause permitting the person to deal in securities
    business
    III. The person shall have the necessary infrastructure like adequate office space, equipment and manpower to effectively discharge the activities on behalf of the stock broker.
  10. Conditions of Appointment
    The following are the conditions of appointment of an Authorized Person:
    a) The stock broker shall be responsible for all acts of omission and commission of the Authorized Person
    b) All acts of omission and commission of the Authorized Person shall be deemed to be those of the stock broker
    c) The Authorized Person shall not receive or pay any money or securities in its own name or account. All receipts and payments of securities and funds shall be in the name or account of the stock broker
    d) The Authorized Person shall receive his remuneration – fees, charges,
    commission, salary, etc. – for his services only from the stock broker and he shall not charge any amount from the clients
    e) A person shall not be appointed as an Authorized Person by more than one stock broker on the same stock exchange
    f) A partner or director of an Authorized Person shall not be appointed as an Authorized Person on the same stock exchange
    g) The stock broker and Authorized Person shall enter into written agreement(s) in the form(s) specified by the stock exchange. The agreement shall inter-alia cover the scope of the activities, responsibilities, confidentiality of information, commission sharing, termination clause, etc.
  11. Withdrawal of Approval
    The approval given to an Authorized Person shall be withdrawn by the stock exchange:
    a) on receipt of a request to that effect from the concerned stock broker or the Authorized Person, subject to compliance with the requirements prescribed by the stock exchange, or
    b) on being satisfied that the continuation of the Authorized Person is
    detrimental to the interest of investors or the securities market or
    c) the Authorized Person at a subsequent date fails to fulfil the eligibility criteria specified at clause 4
  12. Obligations of a Stock Broker
    a) The stock broker shall be responsible for all acts of omission and commission of his Authorized Person(s) and/or their employees, including liabilities arising therefrom
    b) If any trading terminal is provided by the stock broker to an Authorized Person, the place where such trading terminal is located shall be treated as the branch office of the stock broker
    c) The stock broker shall display at each branch office additional information such as particulars of the Authorized Person in charge of that branch, time lines for dealing through the Authorized Person, etc., as may be specified by the stock exchange
    d) The stock broker shall notify changes, if any, in the Authorized Person to all registered clients of that branch at least thirty days before the change
    e) The stock broker shall conduct periodic inspection of branches assigned to the Authorized Persons and the records of the operations carried out by them
    f) The client shall be registered with the stock broker only. The funds and
    securities of the clients shall be settled directly between the stock broker and the client and all documents like contract notes, statement of funds and securities shall be issued to the client by the stock broker. The Authorized Person may provide administrative assistance in procurement of documents and settlement, but shall not issue any document to the client in his own name. No fund/securities of the clients shall be credited to the accounts of the Authorized Person
    g) On noticing any irregularities in the operations of the Authorized Person, the stock broker shall:
    i. seek withdrawal of approval of the Authorized Person,
    ii. withhold all moneys due to Authorized Person till resolution of client
    complaint,
    iii. alert clients / potential investors in the location where such an Authorized Person operates,
    iv. file a complaint with the police and take all measures required to protect the interest of the investors and the market
  13. Obligations of the Stock Exchange
    a) The stock exchanges shall maintain a database of all the Authorized Persons which shall include the following:
    i. Tax Id of home jurisdiction of individual Authorized Person and in case
    of a partnership, LLP or body corporate, the Tax id of the home
    jurisdiction of all the partners or directors and Legal Entity Identifier
    (LEI) number of the entity as the case may be
    ii. Details of the stock broker with whom the Authorized Person is
    registered
    iii. Locations of branch assigned to the Authorized Person(s)
    iv. Number of terminals and their details, given to each Authorized Person.
    v. Withdrawal of approval of the Authorized Person
    vi. Change in status or constitution of the Authorized Person
    vii. Disciplinary action taken by the Exchange against the Authorized
    Person
    The data pertaining to points 8(a)(ii) to 8(a)(vii) above shall be made available on websites of the stock exchanges.
    b) While conducting the inspection of the stock broker, the stock exchange shall also conduct inspection of branches (where the terminals of the Authorized Persons are located) and records of the operations carried out by them
    c) The dispute between a client and an Authorized Person shall be treated as a dispute between the client and the stock broker. The stock exchanges shall put in place the appropriate dispute resolution/ redressal mechanisms accordingly
    d) In case of withdrawal of approval of Authorized Person due to disciplinary action, the stock exchange shall disseminate the names of such Authorized Persons on its website citing the reason for cancellation

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investment advisors in IFSC

SEBI circular dated 28th September, 2020 amending the Operating Guidelines for Investment Advisors in International Financial Services Centres. Gist follows:

i. Clause 3 of the operating guidelines read with para 3 of circular dated February 28, 2020 is amended as follows-
“3. The following persons shall be eligible to apply to the Board for registration as an Investment Adviser in IFSC:
a. Any entity, being a company or a limited liability partnership (LLP) or any other similar structure recognised under the laws of its parent jurisdiction, desirous of operating in IFSC as an Investment Adviser (IA), may form a company or LLP to provide investment advisory services.
b. The formation of a separate company or LLP shall not be applicable in case the applicant is already a company or LLP in IFSC.”

The earlier clause stipulated net worth criteria which has been removed. Net worth stipulation is appearing in another clause 8.

“Clause 4 is amended as follows – 4. Persons seeking registration under the Investment Adviser Regulations read with these Guidelines shall provide investment advisory services only to those persons referred in Clause 9 (3) of the IFSC Guidelines. Further, IAs shall ensure to comply with the applicable guidelines issued by the relevant overseas regulator/ authority, while dealing with persons resident outside India and non-resident Indians seeking investment advisory services from them.”

Earlier the onus to comply with the IA guidelines in case of persons being resident outside India and non-resident Indians were on the non residents themselves. Now it has been changed to ensure that the IAs have to comply with the applicable guidelines issued by the relevant overseas regulatory/ authority while dealing with non resident clients.

Clause 8(c) of the operating guidelines is amended as follows-
“c. The IA/ parent entity shall fulfil the aforesaid net worth requirement, separately and independently for each activity undertaken by it under the relevant regulations.”

Clause 8(c) should be read with Clause 8(a) and (b) to understand it better.

  1. Net Worth Requirement [Corresponding Regulation in Investment Adviser Regulations-
    In case of applicants referred to in para 3, the net worth requirement shall be as under:
    a. An applicant shall have a net worth of not less than USD 1.5 million.
    b. In case the IA is set up as a subsidiary, the net worth requirement is to be met by the subsidiary itself. However, if the subsidiary does not meet the criteria, the net worth of the parent can be considered.

The earlier 8(c) said that the IAs shall fulfill the aforesaid net worth requirement. Now the amended 8(c) stipulates that either the IA or its parent entity shall fulfill the aforesaid net worth requirement.

Clause 9 of the operating guidelines is amended as follows-
“9. An IA shall ensure to conduct annual audit in respect of compliance with
Investment Adviser Regulations and these guidelines from a chartered accountant or a company secretary.”

The earlier clause 9 stipulated as follows:

  1. An IA shall ensure to conduct annual audit in respect of compliance with Investment Adviser Regulations and these guidelines from a chartered accountant or a company secretary or its equivalent under the laws in force of the country in which the applicant is registered or
    incorporated.

The earlier clause was little confusing, it was not clear the last part of the paragraph referred to the auditors or the regulations. The amended clause is much more satisfactory.

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listing of InvITs and ReiTs on IFSC bourses

SEBI circular dated 16th September, 2020 on the subject matter.

Sub: Listing and trading of units of Infrastructure Investment Trusts (InvITs) and Real Estate Investment Trusts (REITs) on recognized stock exchanges in International Financial Services Centres (IFSC)

  1. Securities and Exchange Board of India (International Financial Services Centre) Guidelines, 2015 were notified by SEBI on March 27, 2015, which came into force on April 01, 2015.
  2. Clause 7 of SEBI (IFSC) Guidelines, 2015 specifies the types of securities in which dealing may be permitted by stock exchanges operating in IFSC. It has been decided to permit ‘Units of InvITs and REITs by whatever name called in the Permissible Jurisdictions’ as permissible security under sub-clause (vi) of Clause 7 of SEBI (IFSC) Guidelines, 2015.
  3. Accordingly, ‘Units of InvITs and REITs by whatever name called in the Permissible Jurisdictions’ meeting the following conditions may be permitted to list on stock exchanges operating in IFSC:
    i. Such InvITs and REITs which are incorporated/settled in Permissible Jurisdictions, as may be notified by the Government of India from time to time pursuant to notification no. G.S.R. 669(E) dated September 18, 2019 in respect of sub-rule 1 of rule 9 of Prevention of Money-Laundering (Maintenance of Records) Rules, 2005;
    In this regard, the Government of India vide notification dated November 28, 2019, has notified the list of Permissible Jurisdictions in pursuance of notification dated September 18, 2019. Accordingly, a list of Permissible Jurisdictions for the purpose of this clause is placed at Annexure A.
    ii. Such InvITs and REITs are regulated by the securities market regulator(s) in the Permissible Jurisdictions.
    iii. Such InvITs and REITs are listed on any of the specified international exchanges in the Permissible Jurisdiction. A list of International Exchanges for the purpose of this clause is also placed at Annexure A.
  4. Stock exchanges in IFSC shall evolve a detailed framework prescribing the initial and continuous listing requirements for such InvITs and REITs whose units are listed/proposed to be listed on stock exchanges in IFSC (based on para 3 above).
  5. The applicability of this circular is subject to such conditions that may be prescribed by SEBI, Reserve Bank of India and other appropriate authority from time to time.

List of Permissible Jurisdictions and International Exchanges

  1. United States of America – NASDAQ, NYSE
  2. Japan – Tokyo Stock Exchange
  3. South Korea – Korea Exchange Inc.
  4. United Kingdom excluding British Overseas Territories- London
    Stock Exchange
  5. France – Euronext Paris
  6. Germany – Frankfurt Stock Exchange
  7. Canada – Toronto Stock Exchange

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portfolio managers in IFSC

SEBI has released operational guidelines for portfolio managers in International Financial Services Centre (IFSC). Gist of the guidelines are given below:

Operating Guidelines for Portfolio Managers in International Financial Services Centre (IFSC)

  1. Applicability
    a. SEBI (Portfolio Managers) Regulations, 2020 (‘PMS Regulations’)
    All provisions of the PMS Regulations, the guidelines and circulars issued thereunder, shall apply mutatis mutandis to Portfolio Managers setting up/ operating in IFSC subject to these operating guidelines. Further, subsequent amendments, if any, in PMS Regulations, guidelines and circulars issued by SEBI for portfolio managers shall be applicable to
    Portfolio Managers in IFSC.
    b. SEBI (International Financial Services Centres) Guidelines, 2015 (‘IFSC Guidelines’) The provisions of IFSC Guidelines and relevant circulars shall also apply to Portfolio Managers (PM) setting up/ operating in IFSC subject to these operating guidelines.
  2. Registration of Portfolio Managers
    a. An application for grant of certificate of registration shall be made in accordance with the provisions of Chapter II of the PMS Regulations, accompanied by a non-refundable application fee as stated in Clause 5 of this Annexure.
    b. An entity, being a company or a limited liability partnership (LLP), which has the minimum prescribed net worth as specified herein can act as a PM in IFSC, in the following forms.

i. Any SEBI-registered intermediary (except trading member or clearing member) or its international associates in collaboration with such SEBI-registered intermediary may provide portfolio management services in IFSC, by setting up a branch in IFSC, subject to the prior approval of the Board. Further, it shall ensure that:
 Exclusive manpower shall be allocated for providing portfolio management services from the branch in IFSC.
 The branch shall comply with all the provisions (except obtaining Registration) specified in the operating guidelines.
 The parent entity shall be required to ring fence its domestic operations, legally, financially, operationally and technologically, from its operations at IFSC.
ii. Other entities (that is in the form of a corporate or LLP or any other similar structure recognised under the laws of its parent jurisdiction), based in India or in a foreign jurisdiction, desirous of operating in IFSC as a PM, may form a company or LLP to provide portfolio management services. However, the formation of a separate company or LLP shall not be applicable in case the applicant is already a company or LLP in IFSC.
c. The obligation of ensuring that the branch complies with PMS Regulations, IFSC Guidelines, and Circulars issued thereunder, shall be on the parent entity.
d. The Board may grant certificate/ approval if it is satisfied that the applicant fulfils the requirements as specified in the PMS Regulations read with these operating guidelines.
e. Where the PM in IFSC proposes to change its status or constitution, it shall obtain prior approval of the Board for continuing to act as such after the change.

Operational Compliances
a. Certification Requirement
Principal officer and employee having decision making authority related to fund management and who are resident outside India may have certification from any other organization or institution or association or stock exchange which is recognized/ accredited by a Financial Market regulator in that foreign jurisdiction. However, certification from NISM shall be mandatory in case the aforesaid persons deal in Indian securities markets.
b. Net Worth Requirement
i. Applicants referred to in para 2 shall have a net worth of not less than USD 750,000.
ii. In case the PM is set up as a branch, the net worth requirement is to be met by the parent entity.
iii. In case the PM is set up as a subsidiary, the net worth requirement is to be met by the subsidiary itself. However, if the subsidiary does not meet the criteria, the net worth of the parent entity will be considered.
iv. The PM/ parent entity shall fulfil the aforesaid net worth requirement, separately and independently for each activity undertaken by it under the relevant regulations.
c. Eligibility of the client to avail portfolio management services PM operating in IFSC shall provide portfolio management services only to those persons referred in Clause 9(3) of the IFSC Guidelines. Further, PMs shall ensure that, when dealing with persons resident outside India and non-resident Indians seeking portfolio management services from them, the PM complies with the applicable guidelines issued by the relevant overseas regulator/ authority.
d. Minimum investment amount
PM operating in IFSC shall not accept from the client, funds or securities worth less than USD 70,000.
e. Segregation of funds
PM operating in IFSC shall keep the funds of all clients in a separate account to be maintained by them in the IFSC Banking Unit (IBU) as permitted by RBI.

The applicability of these operating guidelines is subject to such conditions that may be prescribed by the Board, Reserve Bank of India and other appropriate authority from time to time.

Amount to be paid as fee
Application fee USD 1,500
Registration fee for grant of certificate USD 15,000
Registration fee every three years from date of grant of certificate USD 7,500

https://www.sebi.gov.in/legal/circulars/sep-2020/operating-guidelines-for-portfolio-managers-in-international-financial-services-centre_47522.html

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IFSC

SEBI has issued two circulars, both dated 21st August, 2020 to amend the SEBI (International Financial Services Centres), Regulations 2015.

One amendment brings in a new clause 8(3) as follows:

“8 (3) An entity, based in India or in a foreign jurisdiction, may provide financial services in IFSC, subject to compliance with the applicable regulatory framework/ guidelines for such financial services,as specified by the Board,from time to time.”

The second amendment amends clause 19 of the said guidelines as follows:

“19. The entities issuing and/or listing their debt securities in IFSC shall prepare their statement of accounts in accordance with IFRS/ US GAAP/ IND AS or accounting standards as applicable to them in their place of incorporation. In case an entity does not prepare its statement of accounts in accordance with IFRS/ US GAAP/ IND AS, a quantitative summary of significant differences between national accounting standards and IFRS shall be prepared by such entity and incorporated in the relevant disclosure documents to be filed with the exchange.Provided that quantitative summary of significant differences is not required and a statement of differences between local accounting standards and IFRS/ US GAAP/ IND AS would suffice, if the issue is targeted to institutional investors, along with a disclaimer that issuer has not quantified the effect of applying IFRS/ US GAAP / IND AS to its financial information and investor may make their own judgment in accessing the financial information”.

The circulars are available at

https://www.sebi.gov.in/legal/circulars/aug-2020/securities-and-exchange-board-of-india-international-financial-services-centres-guidelines-2015-amendments_47375.html

https://www.sebi.gov.in/legal/circulars/aug-2020/securities-and-exchange-board-of-india-international-financial-services-centres-guidelines-2015-amendments_47374.html

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clearing corpn in IFSCs

SEBI has vide its circular dated 7th August, 2020 amended the SEBI (International Financial Services Centres) Regulations 2015 by allowing other entities to pick up stake in a clearing corporation to be set up in an IFSC. The majority stake of 51% shall continue to be held by a recognised stock exchange or clearing corporation in India or of a foreign jurisdiction and they may have to in turn form a subsidiary to provide the services of a clearing corporation in an IFSC.

The remaining portion of the shareholding of the said clearing corporation in an IFSC can be held by any person whether Indian or foreign jurisdiction but they cannot hold more than 5% of the equity of the said clearing corporation whether directly or indirectly, individually or jointly or acting in concert.

But entities like i) any other stock exchange, ii) a clearing corporation,
iii) a depository, iv) a banking company, v) an insurance company, whether Indian or of foreign jurisdiction for (i) to (v), vi) a public financial institution of Indian jurisdiction, vii) a foreign commodity derivatives exchange; and viii)a bilateral or multilateral financial institution approved by the Central Government, may hold upto 15 % of the equity share capital of the said clearing corporation whether directly or indirectly, individually or jointly or acting in concert.

Copy of the SEBI circular can be found here https://www.sebi.gov.in/legal/circulars/aug-2020/sebi-international-financial-services-centres-guidelines-2015-amendment_47281.html

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Rupee Derivatives

RBI circular dated 20th January, 2020 regarding introduction of rupee derivatives in international financial services centre

https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=11791&Mode=0

Attention of Authorised Dealers is invited to the Foreign Exchange Management (International Financial Services Centre) Regulations, 2015 (Notification No. FEMA. 339/2015-RB dated 2nd March, 2015).

2. As announced in the statement on Developmental and Regulatory Policies dated October 4, 2019, it has now been decided to allow Rupee derivatives (with settlement in foreign currency) to be traded in International Financial Services Centres (IFSCs), starting with Exchange Traded Currency Derivatives(ETCD).

3. Currency futures contracts may be listed on recognised stock exchanges at IFSCs subject to the Currency Futures in International Financial Services Centre (Reserve Bank) Directions, 2020 (Notification No.FMRD.FMD.01/ED(TRS)-2020 dated January 20, 2020), issued by the Reserve Bank of India, a copy of which is annexed (Annex I).

4. Currency options contracts may be listed on recognised stock exchanges at IFSCs subject to the Currency Options in International Financial Services Centre (Reserve Bank) Directions, 2020 (Notification No.FMRD.FMD.02/ED(TRS)-2020 dated January 20, 2020), issued by the Reserve Bank of India, a copy of which is annexed (Annex II).

5. Necessary amendments to the Foreign Exchange Management (International Financial Services Centre) Regulations, 2015 (Notification No. FEMA. 339/2015-RB dated 2nd March, 2015) have been notified in the Official Gazette vide Gazette Id no.CG-DL-E-17012020-215530 dated January 16, 2020 a copy of which is annexed (Annex-III).

6. Amendments to Currency Futures (Reserve Bank) Directions, 2008 (Notification No.FED.1/DG(SG) – 2008 dated August 6, 2008), as amended from time to time, and Exchange Traded Currency Options (Reserve Bank) Directions, 2010 (Notification No. FED.01/ED(HRK) – 2010 dated July 30, 2010), as amended from time to time, is annexed as Annex IV & V respectively.

7. The above Directions have been issued under Section 45W of the Reserve Bank of India Act, 1934 and the above Regulation have been issued under Section 47 of the Foreign Exchange Management Act, 1999 (42 of 1999).

8. The directions contained in this circular have been issued under Sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions /approvals, if any, required under any other law.

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Rupee Derivatives

RBI circular dated 21st January, 2020 allowing rupee derivatives (with settlement in foreign currency) by the IFSC Banking Units.

https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=11794&Mode=0

Please refer to RBI circular DBR.IBD.BC.14570/23.13.004/2014-15 dated April 01, 2015, as modified from time to time, setting out RBI directions relating to IFSC Banking Units (IBUs).

2. The Task Force (TF) on Offshore Rupee Markets chaired by Smt. Usha Thorat had recommended introduction of non-deliverable Rupee Derivatives in IFSCs in a phased manner, starting with exchange traded currency derivatives (ETCD) to be followed by Over the Counter (OTC) derivatives at a later stage.

3. RBI’s decision to accept the above recommendation and permit Rupee derivatives (with settlement in foreign currency) to be traded in IFSC was announced in para 2 of the Statement on Developmental and Regulatory policies issued on October 04, 2019. Accordingly, a new paragraph No.2.6 (xiv), has been added to Annex I and II of the aforesaid circular dated April 1, 2015, which reads as under:

“IBUs are allowed to participate in exchange traded currency derivatives on Rupee (with settlement in foreign currency) listed on stock exchanges set up at IFSCs. Banks shall ensure that their IBUs have necessary expertise to price, value and compute the capital charge and manage the risks associated with the products / transactions intended to be offered and should also obtain their Board’s approval for undertaking such transactions. IBUs shall follow all other risk mitigation and prudential measures as applicable and detailed in this circular while participating in these products. Further, IBUs may also be guided by A.P (DIR Series) Circular No. 17 on “Introduction of Rupee derivatives at International Financial Services Centres (IFSCs)” dated January 20, 2020.

4. Further, the existing paragraph 2.6(vii) of Annex I and II of the aforesaid circular dated April 01, 2015, is amended by adding the following at the end thereof:

“This is subject to the provisions of paragraph 2.6(xiv).”

5. All other terms and conditions contained in the aforementioned circular remain unchanged.

6. An updated copy of the RBI circular on IBU dated April 01, 2015 incorporating the amendments made hitherto is available on RBI’s website.

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