The Securities and Exchange Board of India (SEBI), on December 17, 2024, issued Measures to address regulatory arbitrage with respect to Offshore Derivative Instruments (ODIs) and FPIs with segregated portfolios vis-à-vis FPIs.
SEBI has updated its requirements related to Offshore Derivative Instruments (ODIs) and segregated portfolios under the FPI Master Circular dated May 30, 2024. Key changes include mandating separate FPI registrations for issuing ODIs (with exceptions for government securities), prohibiting ODIs with derivatives as underlying, and requiring ODIs to be fully hedged on a one-to-one basis. Additionally, new disclosure norms have been introduced for ODI subscribers exceeding specified thresholds, requiring detailed look-through ownership up to natural persons. Exemptions are provided for government investors, public retail funds, and certain regulated entities. Compliance mechanisms for these disclosures and thresholds will involve Depositories, DDPs, and ODI issuing FPIs. Transitional measures include a one-year period to redeem ODIs with derivatives as underlying and allow FPIs to align with the updated requirements. Key provisions will be effective immediately, while others will take effect after five months, with an SOP to be issued within two months.
[Notification No. SEBI/HO/AFD/AFD-POD-3/P/CIR/2024/176]
