The Union government has initiated talks with its American counterpart to relax some rules to enable Indian brokers to tap US citizens with lesser regulatory obstacles.
Stringent US federal securities laws have made it difficult for any non-American intermediary to solicit investors in the world’s largest economy. For instance, such intermediaries should have a broker-dealer registration and also need to register the underlying securities they offer.
A senior finance ministry official said certain regulations in this regard need to be relaxed.
“Any money that you (brokers) take from US investors puts you into trouble with the SEC (Securities and Exchange Commission, the US capital markets regulator). Indian brokers won’t also be able to raise funds through the QFI (qualified financial investor) route, as it would amount to solicitation,” said Sandeep Parekh, founder, Finsec Law Advisors.
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“US regulations have extra-territorial effects unlike ours, which don’t apply to those not registered with Sebi (our SEC counterpart),” said Siddharth Shah, head-funds practice, Nishith Desai Associates.
In November, the SEC had penalised four Indian brokers for providing services to investors in the US without being registered. SEC says these firms were guilty of holding conferences in the US and offering Indian securities to US investors despite being unregistered broker-dealers. Following this incident, most Indian brokers have stopped tapping US investors aggressively.
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“If you solicit a trade in the US on non-registered securities, you are running a big risk. It is a very tough market for any non-US broker,” said Anand Tandon, chief executive, JRG Securities.
The government is concerned that the newly introduced QFI route here will be a non-starter for investors from the US, given the securities regulations there. “Given the bilateral ties, we believe some of these issues can be resolved. We expect some measures to be announced in this regard during the Indo-US dialogue in March,” said an official in the capital markets division of the finance ministry.
He said the recent SEC charges on Indian brokers was also likely to be brought up and the possibility of reversal of penalties explored.
However, experts believe it is unlikely the US government will change its regulations for only India, as these apply across jurisdictions.
“The US might administratively simplify the process but it looks unlikely that they will change the laws just for India. At the most, it may lay down some disclosure standards or some safe harbours for non-US intermediaries who deal with US investors,” said Shah.