Key Highlights from SEBI’s Recent Circular on Offshore Derivative Instruments (ODIs):
- Issuance of ODIs:
- Foreign Portfolio Investors (FPIs) can issue ODIs only through a separate, dedicated FPI registration that includes no proprietary investments. The suffix “ODI” will be added to such FPI names.
- FPIs are prohibited from issuing ODIs with derivatives as the underlying asset.
- FPIs cannot hedge ODI positions using derivatives on Indian stock exchanges. ODIs must be fully hedged on a one-to-one basis with securities.
- Ownership Disclosure Requirements:
- FPIs issuing ODIs must collect detailed ownership information on all entities holding economic or controlling interests in ODI subscribers.
- This includes a full look-through disclosure up to the level of natural persons, with no minimum ownership threshold.
- Exceptions apply for:
- Government-related investors,
- Public Retail Funds,
- Exchange-Traded Funds (with <50% Indian exposure),
- University funds and similar non-profits.
- Specified Criteria for ODI Subscribers:
- ODI subscribers with more than 50% exposure in a single Indian corporate group or with equity positions exceeding INR 25,000 crore must comply with additional disclosure mandates.
- Transition Measures:
- ODIs currently issued with derivatives as underlying assets must be redeemed within 1 year. No renewals are permitted.
- Outstanding ODIs hedged using derivatives must be fully hedged with the same securities on a one-to-one basis within the same timeline.
- Compliance Timelines:
- The provisions come into effect immediately, except for specific granular reporting requirements, which will take effect after 5 months.
This regulatory move aims to enhance transparency, reduce arbitrage opportunities, and align ODI regulations with international best practices while ensuring the stability of Indian capital markets.
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SEBI