SEBI proposes new framework for offshore derivative instruments and FPI segregated portfolios
On Tuesday, the Securities and Exchange Board of India (SEBI) released a consultation paper proposing a new framework for investments made through Offshore Derivative Instruments (ODIs) and segregated portfolios of Foreign Portfolio Investors (FPIs). This move aims to address regulatory gaps and enhance transparency.
Key Proposals
- Expanded Disclosure Requirements: Sebi suggests that the additional disclosure requirements introduced in August 2023 for FPIs should also apply to ODI subscribers and segregated portfolios of FPIs. This includes detailed information about ownership and control.
- Concentration and Size Criteria: The new rules propose that concentration and size criteria be directly applicable to ODI subscribers. For FPIs with segregated portfolios, the assets under management (AUM) of each segregated portfolio should be considered separately.
- Restrictions on Derivatives: Sebi proposes that ODIs can no longer reference or hedge with derivatives. Instead, they should be limited to cash equity, debt securities, or permissible FPI investments, and must be fully hedged on a one-to-one basis.
- Separate Registration for ODIs: The regulator suggests that ODIs should be issued through a separate FPI registration, with no proprietary investments allowed.
Objectives
- Addressing Regulatory Arbitrage: The proposals aim to close potential regulatory gaps between investments through ODIs, FPIs with segregated portfolios, and regular FPIs.
- Enhancing Transparency: By aligning the disclosure requirements for ODIs with those for regular FPIs, Sebi seeks to improve overall transparency in the investment process.
Sebi has invited public comments on these proposals until August 27.