Sebi tightens norms on Offshore Derivative Instruments

Allows continuation of existing ODI contracts till expiry

Stock market regulator Securities and Exchange Board of India (Sebi) has imposed restrictions on issue of Offshore Derivative Instruments (ODIs) by foreign portfolio investors (FPIs). In a circular issued yesterday, 24 November 2014, Sebi said that a foreign portfolio investor (FPI) shall issue ODIs only to those ODI subscribers who are resident of a country whose securities market regulator is a signatory to International Organization of Securities Commission's Multilateral Memorandum of Understanding or a signatory to bilateral Memorandum of Understanding with Sebi. If the ODI applicant is a bank, the central bank of the country must be a member of Bank for International Settlements. An FPI cannot issue ODIs if the applicant is not resident in a country identified in the public statement of Financial Action Task Force as a jurisdiction having a strategic Anti-Money Laundering or Combating the Financing of Terrorism deficiencies to which counter measures apply or a jurisdiction that has not made sufficient progress in addressing the deficiencies or has not committed to an action plan developed with the Financial Action Task Force to address the deficiencies.

An FPI shall issue ODIs only to those subscribers which do not have opaque structures, Sebi said in a circular. Sebi also said that the investment restrictions which are applicable to FPIs will also apply to ODI subscribers.

Existing ODI positions which are not in conformity with these latest conditions imposed on issue of ODIs, can be continued till the expiry of the ODI contract. No additional issuances/renewal/rollover of such positions shall be permitted, Sebi said. The conditions imposed on issue of ODIs will come into effect immediately, Sebi said.

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