Markets regulator Sebi today said stock exchanges operating in international financial services centres (IFSCs) may allow trading in equity derivatives.
However, this is subject to prior approval by Securities and Exchange Board of India (Sebi).
Besides, Sebi-registered Foreign Portfolio Investors (FPIs) as well as eligible entities operating in IFSCs will be eligible to trade in derivatives on equity shares.
The decision has been taken after taking into account recommendations of Sebi's risk management review committee.
"The recognised stock exchanges operating in IFSC may permit dealing in 'derivatives on equity shares', subject to prior approval of Sebi," the markets regulator said in a circular.
Sebi said that market wide position limit (MWPL) for 'derivatives on equity shares' will be equal to 10 per cent of the number of shares held by non-promoters in the relevant underlying security (free-float holding).
Further, the market wide position limit for 'derivatives on equity shares' in stock exchanges in IFSC will be reckoned separately from that in the bourses in domestic market.
The MWPL (in value terms), in no circumstances, will exceed the 50 per cent of the MWPL in stock exchanges in domestic market.
The markets watchdog, in March 2015, had issued a detailed set of guidelines for establishing IFSCs as part of its efforts for setting-up financial hubs in the country. The first such centre has been set up in Gujarat's GIFT City.
Under the IFSC regime, any recognised domestic or foreign stock exchange can set up a subsidiary, in the financial services centre, provided they hold at least 51 per cent stake in the venture.
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