Mumbai: In order to prevent the misuse of offshore derivative instruments (ODI) and improve transparency in funds flowing into Indian capital markets, Sebi on Monday has proposed to impose a ‘regulatory fee’ and restrict the issue of such instruments only for the purpose of hedging.
Participatory notes or ODIs are issued by FPIs to individuals or institutions located outside India who do not want to invest directly in the domestic market by registering with Sebi.
It has proposed to prohibit the issue of ODIs against derivative contracts for speculative purposes. The ODI issuers would be given time till December 31, 2020 to wind up the ODIs issued against derivatives which are not for hedging purpose.
“It will be incumbent on ODI issuing FPI to ensure that ODI is issued against those derivatives, which are purely for hedging purpose and not for naked speculation,” Sebi added.
As of April 2017, the ODIs issued against derivatives had a notional value of Rs 40,165 crore, which is 24 per cent of the total notional value of outstanding ODIs.
Additionally, it has also proposed to impose a fee of $1,000 on each ODI issuing FPI for every ODI subscriber coming through such FPI. “We understand from the monthly data reported by ODI issuers that quite a few ODI subscribers invest through multiple issuers. It will discourage the ODI subscribers from taking this route and encourage them to directly take registration as an FPI,” Sebi said....