 "Sebi mandates granular disclosures for ODIs, restricts derivatives")
The market regulator on Tuesday mandated granular disclosures on ownership and economic interest for offshore derivative instruments (ODIs), aligning the rules with that for foreign portfolio investors (FPIs) to prevent any regulatory arbitrage.
ODIs, earlier referred to as participatory notes or pnotes, are financial instruments used by hedge funds to invest in Indian securities without registering onshore.
“The detailed mechanism for independently validating conformance of the ODI subscribers with the conditions, exemptions and format for disclosures shall be spelt out in the Standard Operating Procedure (SOP) framed and adopted by Depositories, DDPs/Custodians and ODI issuing FPIs in consultation with Securities and Exchange Board of India (Sebi),” states the circular issued on Tuesday.
The granular disclosure requirements will be applicable on ODI subscribers having more than 50 per cent of its equity ODI positions through the FPI in ODIs referenced to securities of a single Indian corporate group and to those having equity positions worth more than Rs 25,000 crore in the Indian markets.
Further, Sebi has provided a year’s time for existing ODIs with derivatives as underlying to be redeemed as such ODIs will now be restricted.
Sebi has also directed FPIs to issue ODIs only through a separate dedicated FPI registration with no proprietary investments.
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FPIs that have ODIs outstanding will have to obtain separate dedicated registration within a year.
Sebi has also restricted issuance of ODIs with derivatives as the underlying.
The thresholds are similar to those prescribed for the FPIs last year. Similarly, the exclusions provided are also on the similar lines such as government-related investors and certain exchange traded funds.
At the end of September, the value of outstanding ODIs stood at Rs 1.72 trillion, just 2.04 per cent of total assets under custody (AUC) of FPI.