Guidelines for issuance of ODIs, with derivative as underlying, by the ODI issuing FPIs
Summary
The circular mandates that Foreign Portfolio Investors (FPIs) are prohibited from issuing Overseas Derivative Instruments (ODIs) with derivatives as underlying, except for hedging equity shares on a one-to-one basis. Existing non-hedging ODIs must be liquidated by their maturity date or December 31, 2020, whichever is earlier. For fresh issuances, FPIs must submit a certificate from their compliance officer confirming the hedging nature of the derivative position.
Text
The ODI issuing FPIs shall not be allowed to issue ODIs with derivative as underlying, with the exception of those derivative positions that are taken by the ODI issuing FPI for hedging the equity shares held by it, on a one to one basis.
In the case of the existing ODIs which have been issued by the ODI issuing FPIs with derivatives as underlying, where the said underlying derivatives position are not for purpose of hedging the equity shares held by it, the ODI issuing FPI has to liquidate such ODIs latest by the date of maturity of the ODI instrument or by December 31, 2020, whichever is earlier.
In the case of issuance of fresh ODIs with derivatives as underlying, a certificate has to be issued by the compliance officer (or equivalent) of the ODI issuing FPI, certifying that the derivatives position, on which the ODI is being issued, is only for hedging the equity shares held by it, on a one to one basis.
It is clarified that the term “hedging of equity shares” means taking a one-to-one position in only those derivatives which have the same underlying as the equity share.
This circular is issued in exercise of powers conferred under SEBI Section 11 (1) of the Securities and Exchange Board of India Act, 1992 and shall come into effect on immediate basis.
Source: SecMarx — Guidelines for issuance of ODIs, with derivative as underlying, by the ODI issuing FPIs. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.