SEBI Tightens Rules on Offshore Derivative Instruments to Boost Transparency
18 Dec 2024 10:28 AM IST
SEBI has introduced significant changes to the regulations governing Offshore Derivative Instruments issued by Foreign Portfolio Investors (Representational image)
Mumbai: The Securities and Exchange Board of India (SEBI) has introduced significant changes to the regulations governing Offshore Derivative Instruments (ODIs) issued by Foreign Portfolio Investors (FPIs). A circular issued on Tuesday outlined the new requirements aimed at enhancing market transparency and stability.
Under the revised framework, FPIs are prohibited from issuing ODIs with derivatives as their underlying assets or using derivatives to hedge their ODI positions in India. Existing ODIs with derivatives as the underlying must be redeemed within a year from the circular's issuance.
Additionally, FPIs can now issue ODIs only through a separate and dedicated FPI registration, which excludes proprietary investments. SEBI also mandated detailed disclosures of ownership, economic interest, and control in ODIs by all entities involved.
"SEBI has issued a bold circular to reshape Offshore Derivative Instruments. The move aims to boost transparency, reduce systemic risks, and align foreign investments with India’s market conditions while tackling regulatory loopholes," said Nikunj Saraf, Vice President of Choice Wealth.
While the stricter norms may increase compliance costs and deter short-term players, experts believe the measures will attract long-term institutional investors valuing transparency and market stability. "By reducing speculative positions, SEBI’s reforms could lead to a more resilient equity market," Saraf added.
The changes are expected to reshape the landscape of foreign investments in India, balancing market integrity with regulatory oversight.
Under the revised framework, FPIs are prohibited from issuing ODIs with derivatives as their underlying assets or using derivatives to hedge their ODI positions in India. Existing ODIs with derivatives as the underlying must be redeemed within a year from the circular's issuance.
Additionally, FPIs can now issue ODIs only through a separate and dedicated FPI registration, which excludes proprietary investments. SEBI also mandated detailed disclosures of ownership, economic interest, and control in ODIs by all entities involved.
"SEBI has issued a bold circular to reshape Offshore Derivative Instruments. The move aims to boost transparency, reduce systemic risks, and align foreign investments with India’s market conditions while tackling regulatory loopholes," said Nikunj Saraf, Vice President of Choice Wealth.
While the stricter norms may increase compliance costs and deter short-term players, experts believe the measures will attract long-term institutional investors valuing transparency and market stability. "By reducing speculative positions, SEBI’s reforms could lead to a more resilient equity market," Saraf added.
The changes are expected to reshape the landscape of foreign investments in India, balancing market integrity with regulatory oversight.
( Source : Deccan Chronicle )
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