SEBI Updates ODI and FPI Regulations in India
India’s SEBI, the Securities and Exchange Board of India, has recently made some important updates to the rules and reporting norms for Foreign Portfolio Investors (FPIs). These changes, which were announced on December 17, 2024, are aimed at improving oversight of offshore derivative transactions in India’s capital markets.
One key change is that FPIs are no longer allowed to issue offshore derivative instruments (ODIs) with derivatives as underlying assets. This is to prevent the use of complex financial instruments that could potentially mask the true nature of foreign investments. Additionally, FPIs are now prohibited from hedging their ODIs through derivative positions on Indian stock exchanges in order to curb speculative activities and market manipulation.
SEBI has also introduced stricter reporting requirements for FPIs. They must now gather and maintain detailed information about the ownership of entities controlling the ODIs they issue. This move is intended to enhance transparency in the capital markets and give regulatory authorities a clearer picture of foreign investments in India.
Furthermore, SEBI has outlined specific conditions for issuing ODIs. FPIs can only issue ODIs through a separate FPI registration that does not include proprietary investments and must be fully hedged with the same securities on a one-to-one basis throughout the ODI’s tenure. This is to ensure compliance with SEBI regulations and prevent misuse of ODIs for indirect control of Indian companies.
Depositories, such as the National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL), are also advised to establish systems to ensure compliance with these new provisions within five months from the date of the circular’s issuance.
Overall, these updates represent a significant step towards fostering a more transparent and secure investment environment in India. By requiring FPIs to provide detailed ownership information and adhere to strict guidelines for issuing ODIs, SEBI aims to prevent misuse of financial instruments and enhance accountability in the capital markets.
