Foreign investments in Indian markets have been made easier by two U.S. regulators at a time when domestic bourses are trying to protect the volumes from moving offshore.
Asia’s oldest stock exchange BSE Ltd. has been recognised as a designated offshore securities market by the U.S. Securities and Exchange Commission for sale of securities to American investors, according to a BSE statement. The Commodity Futures Trading Commission has allowed the National Stock Exchange Ltd.’s brokers to trade in derivatives for U.S. clients by granting ‘Part 30 exemption’, according to the bourse’s statement.
That comes after Indian stock exchanges decided to stop sharing data with overseas peers to prevent derivative volumes from moving offshore and promote the international trading hub in Gujarat, Prime Minister Narendra Modi’s home state. The move followed Singapore Exchange’s bid to offer single-stock futures that account for a third of futures volumes on the NSE, India’s largest exchange. SGX will migrate all Nifty positions of its clients to new Indian derivatives from June 4.
Designated Offshore Securities Market
The status allows resale of securities by U.S. investors through the BSE’s trading platform without registration of such securities with the SEC. This is likely to make Indian Depository Receipts more attractive for U.S. investors and provide a larger liquid market, the exchange said. As of now, there is one IDR, Standard Chartered Plc., listed in India.
The recognition is expected to benefit companies that operate out of the U.S. and Indian market, Jyoti Rai, head of channel partners and alliances at Edelweiss Prime Broking & Custody. They can look to list in both the countries, she said.
This will help Indian companies listed on the BSE to raise capital from U.S. investors through follow-on-offers. We see increased attractiveness of IDRs among U.S. investors in the coming years.Jyoti Rai
CFTC Part-30 Exemption
The exemption will allow brokers registered with the NSE to trade on behalf of their U.S. clients without having to register with the U.S. regulator.
Currently, U.S. clients who wanted to hedge India risk through derivatives invested via jurisdictions like Mauritius which have tax treaties with India. Those who wanted to take positions directly would trade in Nifty Futures on the SGX—also CFTC Part 30-compliant.
But it’s unlikely that U.S. investors will immediately use this route to gain access to Indian market as the country does not have a tax treaty with the U.S., an official from a leading brokerage told BloombergQuint. Such treaties help reduce capital gains tax.