Sebi clears norms for international finance centres

India on Sunday moved a step closer to having a Singapore- or Dubai-like financial hub, with the Securities and Exchange Board of India (Sebi) approving a framework for international financial centres (IFCs).

After its board meeting in New Delhi, the market regulator issued broad guidelines for IFCs, aimed primarily at reversing the export of India’s financial markets. And, for the first time, the Sebi board allowed listing and trading of municipal bonds, also referred to as ‘muni’ bonds, to aid the government’s smart-city initiatives.

Sebi, among other things, eased the pricing formula for financial institutions to convert debt to distressed borrowers into equity. A framework to enable local fund managers to simultaneously manage foreign funds was issued, and some key initiatives planned for the coming financial year were also unveiled.

Sebi said IFCs, to be set up under the Special Economic Zone (SEZ) Act of 2005, would allow subsidiaries of both domestic and foreign stock exchanges to set up shop here. Issue of depository receipts and other securities by foreign issuers under the Foreign Currency Depository Receipts Scheme, 2014, will also be allowed.

“The guidelines provide for listing and trading of equity shares issued by companies incorporated outside of India, depository receipts, debt securities, currency and interest-rate derivatives, index-based derivatives and other such securities as might be specified by Sebi from time to time. Non-resident Indians, foreign investors, institutional investors, and resident Indians eligible under the Foreign Exchange Management Act (Fema) might participate in IFCs,” Sebi said in a press release.

Leading domestic bourses — the National Stock Exchange (NSE) and BSE — have already agreed, in principle, to set up international exchanges at the Gujarat International Finance Tec-city (GIFT), an equal joint venture between the Gujarat government and IL&FS that is likely to be the country’s first IFC.

“Sebi is one of the important regulators and it certainly opens up chances for setting up international exchanges. We are hoping other regulators like the Reserve Bank of India and the Insurance Regulatory and Development Authority of India will also frame rules by the end of this month,” said GIFT Managing Director Ramakant Jha.

With tax concessions and a relaxed regulatory framework, IFCs will aim at reversing — or at least stemming — the export of India’s financial market. Due to an easy regulatory environment and lower costs, a major portion of trading on India's benchmark stock indices and currency has shifted to markets like Singapore and Dubai.