Sebi proposes tighter rules for offshore derivatives

The Securities and Exchange Board of India (Sebi) has proposed tightening of norms for offshore derivative instruments (ODIs) by levying a fee as well as prohibiting them from being issued against derivatives except for those used for hedging.

It is proposed that beginning April 1, 2017, for a period of every three years, regulatory fees of $1000 be levied on each ODI issuing FPI, for each and every ODI subscriber coming through such Foreign Portfolio Investors (FPI).

As per monthly ODI data reported by ODI issuers, quite a few ODI subscribers invest through multiple issuers. It will discourage ODI subscribers from taking the route, and encourage them to directly take registration as an FPI, Sebi said in a consultation on streamlining the process of monitoring of ODIs/Participatory Notes.

 Presently, ODIs are being issued against derivatives along with equity and debt. As of April 2017, ODIs issued against derivatives had a notional value of Rs 40,165 crore,  which is 24% of the total notional value of outstanding ODIs. Sebi proposes to prohibit ODIs from being issued against derivatives for speculative purpose, the regulator added.

 The regulator, ina circular dated June 10, 2016, had issued instructions on Know Your Client norms for ODI subscribers, transferability of ODIs, reporting of suspicious transactions, periodic review of systems and modified ODI reporting format.