International Financial Services Centre
Section 2(q) of Special Economic Zones Act, 2005 defines the expression ‘international financial services centre’ as an International Financial Services Centre which has been approved by the Central Government under sub-section (1) of section 18.
Section 18(1) of the Special Economic Zones Act, 2005 provides that the Central Government may approve the setting up of Setting up of an International Financial Services Centre in a Special Economic Zone and may prescribe the requirements for setting up and operation of such Center. The Central Government shall approve only one International Financial Services Centre in a Special Economic Zone.
Section 18(2) of the Special Economic Zones Act, 2005 provides that the Central Government may, subject to such guidelines as may be framed by the Reserve Bank, the Securities and Exchange Board of India, the Insurance Regulatory and Development Authority and such other concerned authorities, as it deems fit, prescribe the requirements for setting up and the terms and conditions of the operation of Units in an International Financial Services Centre.
SEBI guidelines
By virtue of section 18(2) of Special Economic Zone Act, 2005 SEBI framed the guidelines known as ‘SEBI (International Financial Services Center) Guidelines, 2015 on 27.03.2015 which came into effect from 01.04.2015.
Applicability of guidelines
These guidelines are applicable to-
- Any entity desirous of organizing or assisting in organizing any stock exchange or clearing corporation or depository, or desirous of undertaking any other financial services relating to securities market;
- Any entity desirous of operating in an IFSC for rendering financial services relating to securities market;
- Financial institutions.
Eligibility and shareholding
- Any Indian recognized stock exchange or any stock exchange of a foreign jurisdiction may form a subsidiary to provide the services of stock exchange in IFSC where at least 51% of paid up equity s hare capital is held by such exchange and remaining shares may be offered to any other recognized stock exchange, whether Indian or of foreign jurisdiction.
- Any Indian recognized stock exchange or clearing corporation, or any recognized stock exchange or clearing corporation of a foreign jurisdiction may form a subsidiary to provide the services of clearing corporation in IFSC where at least 51% of paid up equity share capital is held by such stock exchange or clearing corporation, and remaining shares may be held by any other recognized stock exchange or clearing corporation, whether Indian or of foreign jurisdiction.
- Any Indian registered depository or any regulated depository of a foreign jurisdiction may form a subsidiary to provide the depository services in IFSC where at least 51% of paid up equity share capital is held by such depository and remaining shares may be offered to any other registered depository or recognized stock exchange or clearing corporation, whether Indian or of foreign jurisdiction.
Information to Board
Every person who acquires equity shares of a recognized stock exchange or recognized Clearing Corporation or registered depository in IFSC shall inform the Board within fifteen days of such acquisition.
Net worth
The Guidelines require the minimum net worth to be held by the participants in IFSC. It requires a minimum net worth at the time of giving permission and it is to achieve the required net worth within three years.
- Permitted stock exchanges – minimum net worth at the time of permission – ₹ 25 crores and it has to achieve minimum net worth of ₹ 100 crores within three years.
- Permitted Clearing Corporation – minimum net worth at the time of permission – ₹ 50 crores and it has to achieve minimum net worth of ₹ 300 crores within three years.
- Permitted Depository - minimum net worth at the time of permission – ₹ 25 crores and it has to achieve minimum net worth of ₹ 100 crores within three years.
Non application of certain provisions
The following provisions are not applicable-
- Every recognized stock exchange shall credit 25% of its profits every year to the Fund, of the recognized clearing corporation(s) which clears and settles trades executed on that stock exchange shall not be applicable to the stock exchanges operating in IFSC under Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2012;
- Every depository shall 25% of profits every year to the investor protection fund shall not be applicable to the depositories operating in IFSC under Securities and Exchange Board of India (Depositories and Participants) Regulations, 1996.
- All the transitory provisions or relaxations that were provided to the stock exchanges and clearing corporations to comply with Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2012 shall not be applicable to stock exchanges and clearing corporations operating in IFSC.
- The provisions of Chapter IIA of Securities and Exchange Board of India (Depositories and Participants) Regulations, 1996 and Chapter V of Securities Contracts (Regulation) (Stock Exchanges And Clearing Corporations) Regulations 2012 shall not apply to depositories, stock exchanges, clearing corporations in IFSC.
But the depositories, stock exchanges, clearing corporations operating in IFSC shall adopt the broader principles of governance prescribed by International Organization of Securities Commissions (IOSCO) and principles for Financial Market Infrastructures (FMI) and such other governance norms as may be specified by the Board, from time to time.
Permissible Securities
The stock exchanges operating in IFSC may permit dealing in following types of securities and products in such securities in any currency other than Indian rupee, with a specified trading lot size on their trading platform subject to prior approval of the Board-
- Equity shares of a company incorporated outside India;
- Depository receipt(s);
- Debt securities issued by eligible issuers;
- Currency and interest rate derivatives;
- Index based derivatives;
- Such other securities as may be specified by the Board.
Intermediaries
The term ‘intermediary’ is defined as and including-
- a stock broker,
- a merchant banker,
- a banker to an issue,
- a trustee of trust deed,
- a registrars to an issue,
- a share transfer agent,
- an underwriter,
- an investment adviser,
- a portfolio manager,
- a depositary participant,
- a custodian of securities,
- a foreign portfolio investor,
- a credit rating agency, or
- any other intermediary or any person
associated with the securities market, as may be specified by the Board from time to time.
Approval
Any recognized entity or entities desirous of operating in IFSC as an intermediary, may form a company to provide such financial services relating to securities market, as permitted by the Board.
Nature of clients
The guidelines prescribed the nature of clients to whom the intermediary may render his services.
Financial services
Any permitted intermediary for operating within the IFSC shall provide financial services to the following categories of clients-
- a person not resident in India;
- a non-resident Indian;
- a financial institution resident in India who is eligible under FEMA to invest funds offshore, to the extent of outward investment permitted;
- a person resident in India who is eligible under FEMA, to invest funds offshore, to the extent allowed under the Liberalized Remittance Scheme of Reserve Bank of India, subject to a minimum investment as specified by the Board from time to time.
Portfolio management
Any permitted intermediary for operating within the IFSC shall provide investment advisory or portfolio management services to the following categories of clients-
- a person not resident in India;
- a non-resident Indian;
- a financial institution resident in India who is eligible under FEMA to invest funds offshore, to the extent of outward investment permitted;
- a person resident in India having a net worth of at least US Dollar one million during the preceding financial year who is eligible under FEMA to invest funds offshore, to the extent allowed in the Liberalized Remittance Scheme of Reserve Bank of India.
Investment by portfolio manager
A portfolio manager operating in IFSC shall be permitted to invest in the following-
- Securities which are listed in IFSC;
- Securities issued by companies incorporated in IFSC;
- Securities issued by companies belonging to foreign jurisdiction.
Designated Manager
Any intermediary permitted by the Board for operating within the IFSC shall, for the purpose of enforcing compliance with regulatory requirements, appoint a senior management person as “Designated Officer”.
Issue of Capital
- Domestic companies intending to raise capital, in a currency other than Indian Rupee, in an IFSC shall comply with the provisions of Foreign Currency Depository Receipts Scheme, 2014 notified vide F. No. 9/1/2013-ECB by Government of India on October 21, 2014.
- Companies of foreign jurisdiction, intending to raise capital, in a currency other than Indian Rupee, in an IFSC shall comply with the provisions of the Companies Act, 2013 and relevant provisions of Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 as if the securities are being issued under Chapter X and XA of the said regulations, as may be applicable.
Foreign jurisdiction
The expression ‘foreign jurisdiction’ is defined as a country, other than India, whose securities market regulator is a signatory to International Organization of Securities Commission’s Multilateral Memorandum of Understanding (IOSCO's MMOU) (Appendix A signatories) or a signatory to bilateral Memorandum of Understanding with the Board, and which is not identified in the public statement of Financial Action Task Force as-
- a jurisdiction having a strategic Anti-Money Laundering or Combating the Financing of Terrorism deficiencies to which counter measures apply; or
- a jurisdiction that has not made sufficient progress in addressing the deficiencies or has not committed to an action plan developed with the Financial Action Task Force to address the deficiencies;
Listing and trading
Companies, domestic or of foreign jurisdiction, may list and trade their securities as per norms specified by the Board.
Issue of Debt Securities
The issuer shall be eligible to issue debt securities if the issuer complies with the following-
- The issuer is eligible to issue debt securities as per its constitution.
- The issuer should not have been debarred by any regulatory authority in its home jurisdiction or any other jurisdiction, where it is operating or has raised any capital.
- The issuer or its directors should not be convicted of any economic offence in its home jurisdiction or any other jurisdiction where it is operating or has raised any capital.
- Any other criteria as may be specified by the Board.
The minimum subscription amount in case of private placement per investor shall not be less than 1 lakh US$ or equivalent or such amount as may be specified by Board from time to time.
An issuer desirous of issuing debt securities shall make an application for listing of such debt securities to one or more stock exchanges set up in IFSC.
An issuer of debt securities shall enter into an agreement with a depository or custodian eligible to operate in IFSC for issue of the debt securities, for the purpose of holding and safekeeping of such securities and also to facilitate transfer, redemption and other corporate actions in respect of such debt securities. Where the issuer has a registered office or branch office in IFSC, it may service investors from such office and need not appoint depository or custodian.
The issuer shall comply with the continuous listing requirements including corporate governance and such other conditions as specified in the listing agreement, entered into between the issuer and the stock exchange where such debt securities are sought to be listed. Where the securities of the issuer are already listed on another stock exchange whether foreign or domestic, and it complies with listing agreement in respect of such securities, the Board may modify or relax certain conditions or requirements with regard to listing agreement in respect of debt securities issued under these Guidelines.
The debt securities listed in stock exchanges shall be traded on the platform of the stock exchange and such trades shall be cleared and settled through clearing corporation set up in IFSC as specified.
Conditions for investment
- In order to make an investment in an alternative investment fund or a mutual fund operating in IFSC, the investor shall be-
- a person resident outside India;
- a non-resident Indian;
- institutional investor resident in India who is eligible under FEMA to invest funds offshore, to the extent of outward investment permitted;
- person resident in India having a net worth of at least US Dollar one million during the preceding financial year who is eligible under FEMA to invest funds offshore, to the extent allowed in the Liberalized Remittance Scheme of Reserve Bank of India;
- the investors may make an investment in an alternative investment fund or a mutual fund operating in IFSC, subject to guidelines of Reserve Bank of India.
- Any alternative investment fund or mutual fund operating in IFSC shall accept money from eligible investors only in foreign currency.
- Any alternative investment fund or mutual fund operating in IFSC shall be permitted to invest in the following-
- Securities which are listed in IFSC;
- Securities issued by companies incorporated in IFSC;
- Securities issued by companies belonging to foreign jurisdiction
- An asset management company of a mutual fund operating in IFSC shall have a net worth of not less than USD two million which shall be increased to USD ten million within three years of commencement of business in IFSC.
- The requirements such as appointment of trustee, custodian, manager, etc., shall be as specified by the Board.
- The requirements regarding raising of funds in foreign currency such as minimum investment amount, minimum corpus of fund, disclosures, investment conditions, valuations, types of schemes, professional qualifications, etc., shall be as specified by the Board.
