The Securities and Alternate Board of India (SEBI) on Tuesday proposed that offshore spinoff devices (ODIs) issued by offshore funds must be backed solely by money fairness or debt positions and never derivatives.
It additionally proposed that traders in ODIs make extra disclosures if greater than half of the devices’ funds are deployed in an Indian company group.
ODIs are automobiles that enable overseas traders to spend money on Indian securities with out registering within the nation.
Derivatives positions taken by ODIs in Indian markets add to market volatility, in response to 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 right away response. India has been tightening rules on spinoff trades, with the federal government elevating tax on such transactions and the regulator transferring to curb retail exercise, warning about wider dangers. SEBI now desires to discourage a construct up of spinoff positions by offshore funds by way of opaque constructions, the primary supply stated.
4 offshore funds with ODIs have lengthy futures positions price 30.75 billion rupees (about $366 million) on Indian securities, in response to 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 stated.
“Therefore a whole ban on derivatives positions (by way of 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 stated.
ODIs have 1.34 trillion rupees (about $16 billion) invested in India, practically 2% of complete overseas investments.
A 12 months in the past, SEBI mandated offshore funds to reveal final traders if that they had 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 stated.
