IFSCA wants GIFT City bullion exchange to open for domestic investors

In talks with RBI for being included in LRS; may ask FinMin to intervene

In a bid to shore up volume and liquidity at the country's only International Financial Services Centre (IFSC), its regulator is making a strong pitch before the Reserve Bank for including GIFT City in the liberalised remittance scheme (LRS).
 
The move will allow Indian residents to trade on its bourses and products.
 
The development has come at a time when the regulator, International Financial Services Centre Authority (IFSCA), is finalising the modalities and structure of country's first bullion exchange, which is likely to be notified by the end of November.
 
"We need to open up more products, and provide a level-playing field so that not just international players but even domestic ones get attracted,” said an IFSCA official privy to the development.
 
However, the RBI has its apprehension in permitting Indians to trade in Gujarat International Finance Tec (GIFT) City, as it is of view that the platform could be manipulated for laundering and round-tripping of funds.
 
“The argument of misusing the LRS has no relevance because the same is allowed in global financial centres, which is more risky. Here, at least, there is a regulator to supervise all funds coming through the remittance route and could be scrutinised easily,” said the official cited above. “GIFT City should be treated like other global centres at Mauritius, Dubai, and Singapore. Only then, it would be on par with the services offered by them and compete with them.”

UP FOR GRABS

• GIFT City has attracted companies like TCS, BankAm and Oracle
• City Bank, HSBC are among 8 foreign banks to set up IFSC banking unit
• Many external commercial borrowing deals are also booked in the IFSC
• At present, exchanges lack liquidity and open up for more products and participants
• Bullion exchange framework to be notified end of this month  

 
RBI's remittance scheme allows residents to invest up to $250,000 a year to trade in shares in spot market, account opening and assets overseas.
 
Sources said if the RBI maintained its stand, both the regulators could be at loggerheads. "We will soon seek government intervention, particularly finance ministry’s, if RBI refuses to give nod. The new regulator has all the powers in relation to financial products, financial services, and financial institutions," the official said.
 
Soon after the framework of international bullion exchange is notified, the IFSCA is planning to approach the ministry for allowing remittances, as it wants domestic participation in bullion exchange, too, at GIFT City.
 
“International bullion exchange would lead to better and transparent price discovery of gold. Being one of the biggest consumers of gold, it is essential to enhance the country's position in the bullion market worldwide. We have plans to have a spot exchange, where gold standard will be created in line with London bullion exchange,” the official said.
 
IFSCA is learnt to be working with all stakeholders including banks, retailers, wholesalers, and is also in touch with Customs authority where IFSC-certified gold could get some rebate. Meanwhile, a working group is preparing a comprehensive report on bullion products and participants and is going to submit its report within a few weeks, the official said.
 
Favouring the RBI stance, however, Ashvin Parekh, managing partner – Ashvin Parekh Advisory Services, said: "The concerns associated with round-tripping are not ill founded. The RBI does not allow to trade in IFSC bourses or open accounts with GIFT bank branches because it could have its own ramifications. People look for such loopholes to manipulate the system.”
 
Since October, after power being notified to the regulator, various amendments in the existing framework have been put out. Even the new framework, such as listing of depository receipts has been notified.
 
So far, at least 8-9 foreign banks, including HSBC and City Bank, have got approvals to set up IFSC banking units at GIFT City. It has also attracted companies like TCS, BankAm, and Oracle.