The Securities and Change 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 international 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, based on the sources, who declined to be named as they aren’t authorised to talk to the media. An electronic mail question despatched to SEBI for feedback didn’t get an instantaneous response. India has been tightening laws 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 needs to discourage a construct up of spinoff positions by offshore funds by way of 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 applied, these would have to be wound up in a single yr.
SEBI has no visibility on the leverage taken by ODIs in abroad markets, which poses a surveillance problem, the second supply mentioned.
“Therefore a whole ban on derivatives positions (by way of ODIs) in India has been proposed. SEBI needs the ODI to be hedged solely by way of 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, practically 2% of complete international investments.
A yr in the past, SEBI mandated offshore funds to reveal final traders 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.
