Sebi clarifies, FPIs only barred from issuing ODIs with derivatives as underlying

Sebi has clarified that FPIs not not prohibited from issuing ODIs like P-notes, but they have only been barred from issuing ODIs with derivative instruments as underlying.

Market regulator Sebi has termed a news report stating that it is has prohibited FPIs from issuing Overseas Derivative Instruments (ODIs) as 'incorrect', and clarified that FPIs have only been barred from issuing ODIs with derivative instruments as underlying.

"It is clarified that FPIs have only been barred from issuing ODIs with derivative instruments as the underlying. As on date, there are no ODIs with derivative instruments as the underlying," said Sebi clarification. "It is further clarified that ODIs referencing cash market securities can continue to be issued," Sebi added.

In a circular on December 17, the capital market regulator had said that FPIs cannot issue ODIs with derivatives as reference/underlying, and that an FPI cannot hedge their ODIs with derivative positions on stock exchanges in India.

"An article has been carried in a section of media suggesting that SEBI has prohibited FPIs from issuing Overseas Derivative Instruments (ODIs). This is incorrect," said Sebi's clarification issued on December 18. ODIs that are referencing cash market securities can continue to be issued, the clarification added.

ODIs can only have non-derivative securities as underlying, and shall be fully hedged with the same securities on a one-to-one basis for the ODI.

The circular also specified that FPIs can now issue Offshore Derivative Instruments (ODIs) only through a separate, dedicated FPI registration, without any proprietary investments. This registration must be under the same PAN, with “ODI” as a suffix in the FPI's name. However, this requirement does not apply to ODIs that reference or have government securities as the underlying asset.