Sebi Proposes Stricter Disclosure Rules for Offshore Derivative Instruments

The Securities and Exchange Board of India (Sebi) proposed a new framework to tighten disclosure and regulatory requirements for Offshore Derivative Instruments (ODIs) and segregated portfolios of Foreign Portfolio Investors (FPIs). The new rules aim to close regulatory gaps and will enforce detailed ownership and economic interest disclosures.

The Securities and Exchange Board of India (Sebi) on Tuesday proposed a new framework aimed at tightening the disclosure and regulatory requirements for investments via Offshore Derivative Instruments (ODIs) and segregated portfolios of Foreign Portfolio Investors (FPIs).

Currently, investments through ODIs and segregated portfolios of FPIs have fewer disclosure requirements compared to regular FPIs. Exemptions from the additional disclosure mandates introduced in August 2023 are an example of this disparity.

To address the regulatory loophole, Sebi has suggested applying these additional disclosure requirements to ODI subscribers and segregated portfolios of FPIs with sub-funds or separate classes of shares.

The proposals include enforcing concentration and size criteria directly on ODI subscribers, to be monitored by ODI issuers and their depositories.

Sebi also recommended that for any breaches of concentration criteria, the Indian equity assets under management (AUM) of each segregated portfolio should be evaluated independently.

Moreover, FPIs issuing ODIs or maintaining segregated portfolios must ensure compliance with these rules.

According to Sebi, FPIs meeting specific criteria, such as holding more than 50% of their Indian equity AUM in a single corporate group or holding over Rs 25,000 crore of equity AUM, must provide detailed disclosures about their ownership and economic interests.

The regulatory body also suggested prohibiting ODIs from referencing or hedging with derivatives. Instead, only cash equity, debt securities, or permissible FPI investments, fully hedged on a one-to-one basis, should be allowed.

Sebi proposed that ODIs must be issued through a separate FPI registration with no proprietary investments allowed.

The regulator invited public comments on these proposals until August 27.