Sebi’s proposals aim to curb use of offshore structures for derivative trades, say sources

Indian markets regulator’s newest proposals search to restrict the usage of opaque offshore buildings to commerce in derivatives and comprise attainable volatility, two sources with direct data of the matter mentioned.

The Securities and Alternate Board of India (SEBI) on Tuesday proposed that offshore by-product devices (ODIs) issued by offshore funds must be backed solely by money fairness or debt positions and never derivatives.

It additionally proposed that buyers in ODIs make extra disclosures if greater than half of the devices’ funds are deployed in an Indian company group.

ODIs are autos that permit international buyers to put money into Indian securities with out registering within the nation.

Derivatives positions taken by ODIs in Indian markets add to market volatility, based on the sources, who declined to be named as they aren’t authorised to talk to the media. An e mail question despatched to SEBI for feedback didn’t get a direct response. India has been tightening rules on by-product trades, with the federal government elevating tax on such transactions and the regulator shifting to curb retail exercise, warning about wider dangers. SEBI now desires to discourage a construct up of by-product positions by offshore funds through opaque buildings, the primary supply mentioned.

4 offshore funds with ODIs have lengthy futures positions price 30.75 billion rupees (about $366 million) on Indian securities, based on SEBI.

If the proposals are carried out, these would must be wound up in a single 12 months.

SEBI has no visibility on the leverage taken by ODIs in abroad markets, which poses a surveillance problem, the second supply mentioned.

“Therefore an entire ban on derivatives positions (through ODIs) in India has been proposed. SEBI desires the ODI to be hedged solely via money market to keep away from unknown and opaque leverage,” the individual mentioned.

ODIs have 1.34 trillion rupees (about $16 billion) invested in India, almost 2% of whole international investments.

A 12 months in the past, SEBI mandated offshore funds to reveal final buyers if they’d concentrated holdings in India company teams.

Whereas the norms had been relevant to ODIs, SEBI confronted resistance from giant ODI holders as they weren’t explicitly talked about, the primary supply mentioned.