1.What is the deal?
A: On Thursday, markets regulator Securities and Exchange Board of India (Sebi) allowed foreign investors in Gujarat International Finance Tech (GIFT) City to have the so-called ‘omnibus trade structure’ to ease compliance and access. This will help foreign investors escape direct registration and go through authorised brokers. To address India’s concern on black money, the regulator and exchanges can ask these brokers for information on beneficiaries in case of suspicious transactions.
2. What does this mean?
A: It means that foreign portfolio investors such as Citi Bank and JPMorgan can now trade on GIFT situated exchanges namely INX and NSE IFSC through authorised brokers. The FPIs will not need to register and go through the compliance hurdle. The broker will not have to upfront declare the identity of these foreign investors but will need to provide the beneficiary information to the regulator in case of suspicious transactions.
3. Why was it needed?
The omnibus account structures are present in all major offshore exchanges such as Singapore and Dubai. India was an outlier which insisted on direct registration. Lack of the structure was preventing foreign investors from trading at GIFT City. These will also ease access for P-Note users, who can now trade at GIFT City. This will benefit P-Note users who did not wish to go through the hassle of registration and were finding it hard to access Indian markets with the increased restrictions and had to look towards exchanges such as SGX for India exposure.
4. How does it help?
It may end up boosting volumes and flows at GIFT City which is seeing a modest average daily turnover of $360 million. Moreover, it may help bring liquidity onshore which used to be fragmented or divided with offshore exchanges such as SGX which has lenient structures.
5. What are the implications or flip-side?
A: On the flip side, that India has been jostling with the menace of black money and lack of information of end users of funds throws up the possibility of opaque structures. The broker will buy the securities on behalf of his clients and purchases will be under the broker’s name. The details of actual investors will remain anonymous till such time regulators suspect irregularities and thus can be prone to misuse.