Markets watchdog Sebi on Tuesday prohibited Foreign Portfolio Investors (FPIs) from issuing Offshore Derivative Instruments (ODIs) with derivatives as the underlying or using derivatives to hedge their ODIs in India. The measure is aimed at addressing regulatory arbitrage for ODIs and FPIs with segregated portfolios.
In its circular, the Securities and Exchange Board of India (Sebi) said that FPIs cannot issue ODIs with derivatives as the underlying.
Further, FPIs cannot hedge ODIs with derivatives on Indian stock exchanges.
On separate registration for ODIs, Sebi said that FPIs issuing ODIs must have a separate, dedicated registration. This registration will have the suffix “ODI” under the same PAN.
For existing FPIs, adding the suffix will not be treated as a name change.
Separate registration is not required for ODIs with government securities as the underlying.
Sebi has mandated that ODI subscribers must disclose detailed ownership information, up to the level of natural persons, if they meet either of the following criteria: their equity ODI positions account for 50 per cent or more of securities linked to a single Indian corporate group, or their total equity positions in Indian markets exceed Rs 25,000 crore.
This includes ODI positions taken through one or multiple FPIs, holdings of entities with common ownership or control, and equity holdings as a registered FPI.
Certain entities such as government and government-related investors registered under FPI regulations, Public Retail Funds (PRFs), subject to validation and Exchange Traded Funds (ETFs) with less than 50 per cent exposure to Indian equity markets are exempt from these disclosures.
Sebi said that a Standard Operating Procedure (SOP) will outline the process for validating disclosures and exemptions.
The SOP will be prepared by depositories, designated depository participants and FPIs, in consultation with Sebi, and will be publicly available.
