Off-shore investors

Off-shore investors

Updated on 8 November, 2019

GS3 Economy
off-shore-investors

 

The News:

SEBI has opened the doors for several new off-shore investors seeking entry into the Indian markets.

Released operating guidelines-

  • The regulator has allowed banks from countries whose central bank is not a member of the Bank for International Settlements (BIS) to get a foreign portfolio investor (FPI) licence.

  • The development makes several Middle East-based banks including Qatar National Bank, Doha Bank and other banks based out of countries such as Bahrain eligible for trading in India

  • The regulator has also allowed global private banks and regulated brokerages to invest in India on behalf of their clients. 

  • However, banks coming from non-BIS jurisdictions will be eligible for only a Category II licence, as per Sebi’s operating guidelines.

  • In another key announcement, the regulator also allowed foreign brokerages and banks to invest on behalf of their clients. 

  • In other words, an off-shore investor wanting to trade in Indian markets without registering as an FPI can come through this route.

Impact:

  • The new development will attract a wider pool of capital into the Indian market.

  • Allowing foreign individuals and family offices to invest through private banks and other regulated FPIs will encourage first-time investors who do not wish to register in India, to start investing in India.

Previous Norms: Only the banks from countries whose central bank is a part of BIS were eligible for an FPI licence.

Bank for International Settlements (BIS):

  • The BIS is promoted by central banks around the world and works as counterparty to several global transactions. 

  • Currently, 60 central banks including the Reserve Bank of India (RBI) are part of the BIS system, established in 1930.

  • BIS headquartered at Basel, Switzerland and it has two representative offices: in Hong Kong SAR and in Mexico City.

Mission:

  • Fostering discussion and facilitating collaboration among central banks

  • Supporting dialogue with other authorities that are responsible for promoting financial stability

  • Carrying out research and policy analysis on issues of relevance for monetary and financial stability

  • Acting as a prime counterparty for central banks in their financial transactions

  • Serving as an agent or trustee in connection with international financial operations

 

Foreign portfolio investment (FPI)

  • Foreign portfolio investment (FPI) consists of securities and other financial assets held by investors in another country. 

  • It does not provide the investor with direct ownership of a company's assets and is relatively liquid depending on the volatility of the market.

Classifications of FPIs:

FPIs are classified into two categories based on their risk profile. 

  • Category I: Category I FPIs are the sovereign and publicly pooled funds who are subject to lenient know your customer (KYC) norms. 

  • Category II: Category II FPIs, on the other hand, are perceived as riskier funds and are subject to higher documentation requirements.

Participatory Notes (P-Notes):

  • These are offshore derivative instruments with Indian shares as underlying assets that also used for making investments in the stock markets.

  • They are used outside India for making investments in shares listed in the Indian stock market. That is why they are also called offshore derivative instruments.

Who issues P-Notes

  • Participatory notes are issued by brokers and FIIs registered with SEBI. Investing through P-Notes is very simple and hence very popular amongst FIIs

  • In the last five years, SEBI  has cracked down on participatory notes (p-notes) which provided an indirect route for non-resident investors.


 

 

 


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