Amendments made to the Securities Contracts (Regulation) Act, 1956 in 2023 recognized contracts in derivatives, issued by foreign portfolio investors (FPIs) in the International Financial Services Centre (IFSC) under the regulatory oversight of the International Financial Services Centres Authority (IFSCA) as legally tenable.
The IFSCA vide its circular dated May 2, 2024 has allowed non-bank entities registered with the IFSCA and with the Securities and Exchange Board of India (SEBI) as FPIs to issue offshore derivative instruments having Indian securities as underlying assets, also termed as participatory notes or P-Notes within the Gujarat International Fin-Tech City IFSC (GIFT City IFSC). Earlier, only banking entities having operations in the GIFT City IFSC and registered with SEBI as FPIs were allowed to issue P-Notes to overseas investors.
All issuances of P-Notes by FPIs based out of the IFSC will need to be undertaken in accordance with requirements issued by SEBI and IFSCA. Additionally, all such FPIs will be required to provide requisite information to the clearing corporations in GIFT City IFSC by the 10th (tenth) day of every month. Guidelines on the manner and formats for submitting the aforesaid information are yet to be shared by the regulators.
Conclusion
It is expected that various foreign investors would participate in the securities market through P-Notes, provided tax laws remain favourable as well.