Expanding financial horizons: IFSC opens doors for non-bank entities to issue derivative instruments, complete details inside!

The authority had permitted IFSC Banking Units, registered with SEBI as FPIs, to issue derivative instruments with Indian securities as underlying assets in GIFT-IFSC as per the first phase.

In a significant move towards bolstering the financial landscape of the International Financial Services Centre (IFSC), registered non-bank entities are now poised to play a pivotal role in issuing derivative instruments against Indian securities within the GIFT-IFSC ecosystem.

The genesis of this development can be traced back to the Budget Speech of 2023-24, where the Hon’ble Union Minister of Finance and Corporate Affairs of India unveiled a visionary plan to recognize Offshore Derivative Instruments (ODIs) issued in GIFT-IFSC as valid contracts.

This announcement set the stage for subsequent amendments, notably Section 18A of the Securities Contracts (Regulation) Act, 1956, which solidified the legal recognition of derivative contracts regulated by IFSCA and issued within IFSC premises by Foreign Portfolio Investors (FPIs).

The initial phase of this transformative journey saw IFSC Banking Units, registered with the Securities and Exchange Board of India (SEBI) as FPIs, being granted the authority to issue derivative instruments with Indian securities as underlying assets within the GIFT-IFSC enclave.

“The authority had permitted IFSC Banking Units, registered with SEBI as FPIs, to issue derivative instruments with Indian securities as underlying assets in GIFT-IFSC.” Said IFSCA.

Now, embarking on the second phase of this evolutionary process, IFSCA has taken the monumental decision to extend this privilege to IFSCA-registered non-bank entities, also registered with SEBI as FPIs. This strategic expansion aims to diversify the spectrum of players within IFSC, fostering a dynamic environment ripe for innovation and growth.

As a second phase, it has now been decided to permit IFSCA-registered non-bank entities, registered with SEBI as FPIs, to issue derivative instruments with Indian securities as underlying assets in GIFT-IFSC.” As per the press release.

Responsibilities of the issuer entity:

• The entity issuing such derivative instruments in GIFT-IFSC shall ensure compliance with the requirements on issuance of ODIs, as issued by SEBI and IFSCA, from time to time.
• The entity shall furnish requisite information to the Clearing Corporations in GIFT-IFSC in the format as may be prescribed, no later than the tenth day of every month.

As we witness the beginning of a new phase in the story of IFSC, people involved are on the edge of a big change in global finance. Now that non-bank companies can also create derivative instruments with Indian securities, it marks a major shift. This change opens up endless chances for new ideas, investing, and making economies grow in the GIFT-IFSC area.

In conclusion, this progressive stride underscores IFSC’s commitment to pioneering excellence in global financial services, propelling India onto the world stage as a beacon of financial innovation and resilience. With the convergence of regulatory foresight and industry dynamism, the IFSC paves the way for a future where boundaries are blurred, and possibilities are limitless.