SEBI approves proposal to ensure ODIs are subject to disclosure requirements

The Board has also approved a proposal requiring FPIs to issue ODIs (excluding those with government securities as underlying assets) only through a dedicated FPI registration, which will not permit proprietary investments.

Market regulator SEBI announced changes to regulations governing ODI (Offshore Derivative Instruments) disclosures at its Board meeting on September 30.

At the board meeting, the regulator noted that a monitoring and compliance mechanism will be established to ensure that ODI-issuing Foreign Portfolio Investors (FPIs) submit relevant information about ODI subscribers to the depositories, as well as segregated portfolio-level information to the Designated Depository Participant (DDP) or Custodian.

Additionally, non-compliance with these disclosure requirements will result in the redemption of ODIs or liquidation of segregated portfolios within 180 days. Defaulting ODI subscribers will be ineligible to subscribe to or hold any positions through ODIs from any ODI-issuing FPI.

The SEBI Board has also approved proposals to prohibit ODI-issuing FPIs from issuing ODIs that reference derivatives and  hedging their ODIs with derivative positions on stock exchanges.

As per the SEBI press release, "ODIs will only include cash equity, debt securities, or other permissible non-derivative investments as underlying assets, and they must be fully hedged on a one-to-one basis throughout the life of the ODI. Existing ODIs that are hedged with derivatives must be either redeemed or hedged with cash positions on a one-to-one basis within one year from the issuance of these guidelines."

The Board has also approved a proposal requiring FPIs to issue ODIs (excluding those with government securities as underlying assets) only through a dedicated FPI registration, which will not permit proprietary investments.

In an August 6 circular, SEBI suggested that additional disclosure norms applicable to certain FPIs through the August 2023 circular be made applicable to offshore derivative instrument (ODI) subscribers and to segregated portfolios of FPIs.

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