FPIs Only Prohibited from Issuing ODIs or P-Notes with Derivatives as Underlying, SEBI Clarifies
Moneylife Digital Team 18 December 2024
Refuting articles from the media about the Securities and Exchange Board of India (SEBI) prohibiting foreign portfolio investors (FPIs) from issuing overseas direct investment (ODI) or participatory notes (P-Notes), the market regulator says, FPIs have been barred only from issuing ODIs with derivative instrument as the underlying.
 
In a statement, SEBI says, "It is clarified that FPIs have only been barred from issuing ODIs with derivative instruments as the underlying. As on date, there are no ODIs with derivative instruments as the underlying. It is further clarified that ODIs referencing cash market securities can continue to be issued."
 
On 30 May 2024, SEBI issued a master circular for FPIs, designated depository participants and eligible foreign investors specifying the requirements related to ODIs by FPIs. On Wednesday, SEBI modified certain requirements related to ODIs and FPIs with segregated portfolios, including conditions for issuance of ODIs and mandatory additional disclosure by ODI subscribers.
 
The market regulator says, "An FPI shall not issue ODIs with derivatives as reference or underlying. An FPI shall not hedge their ODIs with derivative positions on stock exchanges in India. Accordingly, ODIs shall only have securities (other than derivatives) as underlying and shall be fully hedged with the same securities on a one-to-one basis throughout the tenure of the ODI."
 
However, some media reported that SEBI prohibited FPIs from issuing ODI or P-Notes, which, according to SEBI, is incorrect.
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