India Business Journal - SEBI bars FPIs from issuing ODIs with derivatives as underlying

MONEY

SEBI bars FPIs from issuing ODIs with derivatives as underlying

IBJ Bureau
Dec 18, 2024

Market regulator has barred foreign portfolio investors (FPIs) from issuing offshore derivative instruments (ODIs) with derivatives as underlying or use derivatives to hedge their ODIs in India.

In a circular issued on Tuesday, the Securities and Exchange Board of India (SEBI) has said that FPIs cannot issue ODIs with derivatives as reference or underlying and that an FPI cannot hedge their ODIs with derivative positions on stock exchanges in India. ODIs can 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 tenure of the ODI.

The regulator has issued the new directions to remove the regulatory arbitrage with respect to ODIs and FPIs with segregated portfolios.

The circular has also said that FPIs can now only issue ODIs through a separate, dedicated FPI registration with no proprietary investments. Such FPI registration shall be in the name of the FPI with “ODI” as suffix under the same PAN. This requirement of separate dedicated registration will not apply for issuance of ODIs with government securities as reference or underlying.

The regulator has also mandated the disclosure of granular details of all entities that hold ownership, economic interest or control in ODIs. This is applicable to ODI subscribers who have concentrated holdings in a single corporate group or a large exposure to the Indian market.

According to the circular, this applies to ODI subscribers who fulfil the following criteria:

ODI subscriber having more than 50 per cent of one’s equity ODI positions through the ODI issuing FPI in ODIs referenced to securities of a single Indian corporate group. ODI subscriber having equity positions worth more than Rs 25,000 crore in the Indian markets.