Expansion of Financial Instruments in GIFT-IFSC The International Financial Services Centres Authority (IFSCA) has recently authorized IFSC Banking Units registered as Foreign Portfolio Investors (FPIs) with the Securities and Exchange Board of India (SEBI) to issue derivative instruments with Indian securities as underlying assets at the Gujarat International Finance Tec-City International Financial Services Centre (GIFT-IFSC). This decision, empowered by Section 12 of the IFSCA Act, 2019, aims to enhance the range and complexity of financial products available in the GIFT-IFSC.
Regulatory Framework and Compliance
- Derivative Instruments Issuance: Non-bank entities that are registered with SEBI as FPIs can now issue Derivative Instruments (DIs) in GIFT-IFSC. These instruments include offshore derivatives, commonly known as participatory notes (P-notes).
- Compliance Requirements: Entities issuing these DIs must adhere to specific regulatory guidelines on the issuance of Offshore Derivatives Instruments (ODIs) as outlined by both SEBI and IFSCA.
- Reporting Obligations: These entities are required to submit necessary information to the Clearing Corporation in GIFT-IFSC in a prescribed format by the 10th of every month.
Background and Legislative Support
- Union Budget Announcement: During the 2023-24 Union Budget, Finance Minister Nirmala Sitharaman declared that ODIs issued in the GIFT-IFSC would be recognized as valid contracts.
- Legal Framework: Amendments to Section 18A of the Securities Contracts (Regulation) Act, 1956, have solidified the legal status of derivatives contracts regulated by the IFSCA and issued in IFSC by FPIs.
About the IFSCA
- Role and Function: The IFSCA serves as the unified regulator for the development and regulation of financial products, services, and institutions within India’s GIFT International Financial Services Centre.
- Establishment: Founded under the International Financial Services Centres Authority Act, 2019, the IFSCA was established in 2020.
- Leadership and Headquarters: Chaired by K. Rajaraman, the IFSCA is headquartered in GIFT City, Gandhinagar, Gujarat.
This regulatory update marks a significant step in advancing GIFT-IFSC’s offerings, positioning it as a pivotal hub for international financial services in India and enhancing its attractiveness to global investors.
Login with Google