The Securities and Exchange Board of India (SEBI) eased rules for foreign investors to trade in securities at a new international finance centre, stepping up competition with markets such as Singapore and Dubai that are seen as more investment-friendly.
The government has been trying to lure foreign investors to Gujarat International Finance Tec-City, or GIFT City, which is being developed in Prime Minister Narendra Modi’s home state in western India and offers close to zero tax, dollar contracts, and top-notch infrastructure.
Still, daily trading volumes have been a fraction of the tens of billions of dollars on the country’s two main stock exchanges.
On Thursday, the SEBI allowed most foreign investors to route their orders for trading at GIFT City through segregated nominee account providers without having to register themselves.
Earlier, overseas investors had to follow a cumbersome registration process or stringent know-your-customer rules to be able to trade at the international finance centre.
“This will expand the set of global investors who can now access Indian capital markets,” said Tejas Desai, a partner at EY’s India practice, adding the move is a step in building liquidity at the international finance centre.
The nominee account providers can be trading and clearing members of international stock exchanges and clearing corporations, registered foreign portfolio investors and registered brokers in the finance centre, the SEBI said in a notice on its website.
Stock exchanges at GIFT City will assign a unique client code to each investor and the providers of segregated nominee accounts must ensure due-diligence, including compliance with rules on know-your-customer and anti-money-laundering, the SEBI said.
If asked, they will also have to disclose trading information and customer identities to the SEBI, the regulator said.
Investments in derivatives in India had taken a hit after SEBI banned inflows through participatory notes, or P-notes, because of fears these investments are a conduit for money laundering or the channelling of unaccounted wealth held by Indians abroad into domestic markets.
“The structure allowed on Thursday is similar to p-notes and will boost trading at GIFT City as foreigners can access the same set of derivatives there,” said Suresh Swamy, a partner at PwC in Mumbai.