The IFSCA Official has released a consultation paper proposing a structured framework to allow and regulate OTC derivatives based on securities listed on IFSC exchanges or regulated foreign stock exchanges. Currently, OTC contracts on IFSC-listed securities are not permitted. The 𝐝𝐫𝐚𝐟𝐭 𝐈𝐅𝐒𝐂𝐀 (𝐑𝐞𝐩𝐨𝐫𝐭𝐢𝐧𝐠 𝐚𝐧𝐝 𝐂𝐥𝐞𝐚𝐫𝐢𝐧𝐠 𝐨𝐟 𝐎𝐓𝐂 𝐃𝐞𝐫𝐢𝐯𝐚𝐭𝐢𝐯𝐞𝐬 𝐂𝐨𝐧𝐭𝐫𝐚𝐜𝐭𝐬) 𝐆𝐮𝐢𝐝𝐞𝐥𝐢𝐧𝐞𝐬, 2025 aim to fill this regulatory gap and support market demand for a robust OTC segment alongside exchange-traded derivatives. The proposed Guidelines will apply only to OTC derivative contracts where the underlying assets are equity or bonds listed on a recognized IFSC exchange or a regulated foreign exchange. The key proposals are:
𝐏𝐞𝐫𝐦𝐢𝐭𝐭𝐞𝐝 𝐔𝐧𝐝𝐞𝐫𝐥𝐲𝐢𝐧𝐠: OTC derivatives such as forwards and total return swaps may be issued on:
a. Equities and bonds listed on IFSC or regulated foreign exchanges
b. Index, equity, and bond derivatives listed on regulated foreign exchanges.
𝐄𝐥𝐢𝐠𝐢𝐛𝐥𝐞 𝐈𝐬𝐬𝐮𝐞𝐫𝐬: Initially limited to IFSCA-registered entities, including:
a. IFSC Banking Units (IBUs)
b. Broker-dealers c. Others as permitted by IFSCA
𝐂𝐨𝐧𝐭𝐫𝐚𝐜𝐭 𝐕𝐚𝐥𝐢𝐝𝐢𝐭𝐲: At least one party must be an eligible issuer, and the contract must be booked within IFSC.
𝐂𝐥𝐞𝐚𝐫𝐢𝐧𝐠: All contracts must be cleared through a recognized IFSC Clearing Corporation within one business day. Bilateral clearing is not permitted.
𝐑𝐞𝐩𝐨𝐫𝐭𝐢𝐧𝐠: Issuers must report trades on the same day to an IFSCA-approved Trade Repository. SEBI-registered FPIs must also report relevant trades to Securities and Exchange Board of India (SEBI).
This framework (available at https://lnkd.in/dBBxjXUe) marks a major development in establishing a regulated OTC derivatives market at GIFT IFSC, aligning it with global standards and improving its attractiveness as an international financial hub.
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