IFSC Authority allows non-bank FPIs to issue derivatives in GIFT-IFSC

The circular released by the IFSCA outlines the responsibilities of the issuer entity

The International Financial Services Centres Authority has allowed non-banking entities registered as foreign portfolio investors (FPIs) with SEBI to issue derivatives in GIFT-IFSC, with underlying Indian securities.

This move comes as a follow-up to the announcement made by Finance Minister Nirmala Sitharaman during the Budget Speech of 2023-24, wherein Offshore Derivative Instruments (ODIs) issued in GIFT-IFSC were recognised as valid contracts. Subsequently, Section 18A of the Securities Contracts (Regulation) Act, 1956 was amended to recognise derivatives contracts issued in IFSC as legal and valid. Such contracts are regulated by the IFSCA.

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Earlier, in the first phase, the IFSC authority had permitted the banking units registered as FPIs with SEBI to issue derivative instruments with Indian securities as underlying assets in GIFT-IFSC.

Building upon this initiative, the second phase now allows IFSCA-registered non-bank entities, also registered with SEBI as FPIs, to engage in the issuance of Derivative Instruments with Indian securities as underlying assets in GIFT-IFSC.

The circular released by the IFSCA outlines the responsibilities of the issuer entity. Entities issuing such derivative instruments in GIFT-IFSC are mandated to ensure compliance with the requirements for the issuance of ODIs (offshore derivatives instruments) as specified by SEBI and IFSCA periodically.

Additionally, these entities are required to furnish requisite information to the clearing corporations in GIFT-IFSC in the prescribed format by the tenth day of each month.