The country’s premier stock exchanges are gearing up for the latest investment route opened for foreign investors. After the recent revision of framework and clarification by the government and market regulator, the bourses are moving in to put in place the systems required for implementation of the qualified foreign investor (QFI) framework.
The exchanges are planning to put up a separate order routing mechanism for QFIs as the flow of orders are different from the normal route. QFIs are required to route their orders through qualified depository participants (QDPs).
“The order routing platform needs to have its own checks and controls in line with the rules laid out by Sebi and RBI. It also needs to keep in mind the investment limits,” said an exchange official.
The exchanges have also begun consultations with intermediaries. In a meeting held last week by one of the exchanges and attended by most of the large custodians, including Citi, Deutsche Bank, Kotak, IL&FS, SBI and BNP Paribas, some of these issues were raised.
Issues discussed include providing of back-end systems that need to be in place at the intermediaries’ end, hosting of data and cost of these services.
Also, the number of securities thrown open for QFIs now includes stocks, mutual fund units and corporate bonds. “Exchanges are keen to promote this new line of business and they want the necessary systems to be in place in time. The systems need to be in sync with the recent changes,” said an official who attended this meeting.
According to the rules, a QFI is allowed to hold only one demat account. Also, there is a cap of five per cent on holdings by this class of investors in each company. With non-resident Indians (NRIs) also being allowed to come in through this route, provided they close all other demat accounts, the systems, including triggers and alerts, need to be put in place to ensure that these rules are implemented.
“Last week’s meeting was just the beginning. It has thrown up a number of solutions and different ideas on how these could be implemented. There will be more consultations before something concrete shapes up,” said the official.
While Sebi and the government have made their stands clear with clarifications and circulars, clarity on issues relating to taxation is awaited from the Central Board of Direct Taxes (CBDT). “If CBDT clears the air on setting off of losses and how it is to be done, the systems can be developed accordingly, as the responsibility of taxation still lies with the QDP,” the official added.
The government has recently completed a round of roadshows marketing the QFI route in some Gulf countries and Europe.
