Issuance, Listing and Trading of Debt Securities on Exchanges in International Financial Services Centres

In order to facilitate and regulate financial services relating to securities market in an International Financial Services Centre, SEBI has issued certain guidelines.

The Union Cabinet had approved the establishment of a unified authority for regulating all financial services in International Financial Services Centres (IFSCs) in India through International Financial Services Centres Authority Act, 2019. The first IFSC in India has been set up at GIFT City, Gandhinagar, Gujarat. An IFSC enables bringing back the financial services and transactions that are currently carried out in offshore financial centers by Indian corporate entities and overseas branches / subsidiaries of financial institutions (FIs)to India by offering business and regulatory environment that is comparable to other leading international financial centers in the world like London and Singapore. It would provide Indian corporates easier access to global financial markets. IFSC would also compliment and promote further development of financial markets in India.

Securities and Exchange Board of India (International Financial Services Centres) Guidelines, 2015:

In order to facilitate and regulate financial services relating to securities market in an International Financial Services Centre, the Securities and Exchange Board of India (the Board) issued certain guidelines as prescribed under:
  • Section 11(1) of the Securities and Exchange Board of India Act, 1992
  • Sections 4 and 8A of the Securities Contracts (Regulation) Act, 1956
  • Section 18(2) of the Special Economic Zones Act, 2005
To further streamline the operations at IFSC, based on the internal discussions and consultations held with the stakeholders, the Board provided various guidelines which have been implemented. As of now, for the debt securities listed on stock exchanges in IFSC, the credit rating has to be obtained either from a credit rating agency registered with the Board or from any other credit rating agency registered in a Financial Action Task Force (FATF) member jurisdiction. Requirements such as appointment of trustee, creation of debenture redemption reserve etc. are all governed and specified by the Board from time to time.

An issuer of debt securities can enter into an agreement with a depository or custodian, registered in a FATF member jurisdiction, for issue of the debt securities, for the purpose of holding and safekeeping of such securities and also to facilitate transfer, redemption and other corporate actions in respect of such debt securities.

Eligibility and shareholding limit for stock exchanges to operate in IFSC:
  • Any Indian recognised stock exchange or any stock exchange of a foreign jurisdiction is eligible to form a subsidiary to provide the services of stock exchange in IFSC.
  • At least fifty one per cent of paid up equity share capital must be held by such exchange. The remaining shares can be offered to any other recognised stock exchange, whether Indian or of foreign jurisdiction.
  • A person who acquires equity shares of a recognised stock exchange in IFSC has to inform the Board within fifteen days of such acquisition.
  • Every permitted stock exchange must have a minimum net worth equivalent of twenty five crore rupees initially and it can then enhance its net worth to a minimum equivalent of one hundred crore rupees over the period of three years from the date of approval.
Permissible securities:

The stock exchanges operating in IFSC can permit dealing in following types of securities and products in such securities in any currency other than Indian rupee, with a specified trading lot size on their trading platform subject to prior approval of the Board:
  • Equity shares of a company incorporated outside India;
  • Depository receipt(s);
  • Debt securities issued by eligible issuers;
  • Currency and interest rate derivatives;
  • Index based derivatives;
Issue of Debt Securities:

a)  Eligible issuers:

An issuer is eligible to issue debt securities based on the following criteria:
  • The issuer is eligible to issue debt securities as per its constitution;
  • The issuer should not have been debarred by any regulatory authority in its home jurisdiction or any other jurisdiction, where it is operating or has raised any capital;
  • The issuer or its directors should not be convicted of any economic offence in its home jurisdiction or any other jurisdiction where it is operating or has raised any capital;
  • Any other criteria as may be specified by the Board.
 
b)  Minimum subscription in case of private placement:

The minimum subscription amount in case of private placement per investor cannot be less than US hundred thousand Dollar or equivalent or such amount as may be specified by Board from time to time.

c)   Mandatory listing:

An issuer who wants to issue debt securities can make an application for listing of such debt securities to one or more stock exchanges set up in IFSC.

In addition to the mandatory listing of debt securities that are issued in IFSC, permission of listing of those debt securities on stock exchanges in IFSC which are issued outside IFSC is also provided. However, listing of only those debt securities can be permitted which are issued in, and by issuers resident in Financial Action Task Force (FATF) member jurisdictions. The issuer of debt securities can enter into a listing agreement with the stock exchange(s) where such securities are intended to be listed. Further, the stock exchanges in IFSC can evolve a detailed framework prescribing the initial and continuous listing requirements including corporate governance to be complied with by the issuers whose securities are listed/proposed to be listed on stock exchanges in IFSC. Stock exchanges can submit the listing framework, and the subsequent changes made thereto, if any, to SEBI for approval.

d)   Trading:

Debt securities listed in stock exchanges can be traded on the platform of the stock exchange and such trades can be cleared and settled through clearing corporation set up in IFSC as specified. It has now been decided to permit over the counter trading of debt securities in IFSC subject to clearing and settlement through clearing corporations in IFSC. It is advisable that all OTC trades in debt securities should be reported on the reporting platform of any one of the recognised stock exchanges in IFSC within 15 minutes of the trade. To ensure that the data is not duplicated, the trades can be reported on reporting platform of one of the stock exchanges only. The reporting for a trade must be done by the buyer and the seller on the same platform to ensure matching of both sides of the trades.

e)  Credit rating requirement:

For debt issues within IFSC, the credit rating may be obtained either from a recognized credit rating agency registered with the Board or from any other credit rating agency registered in a foreign jurisdiction.

f)  Agreement with depository or custodian:

An issuer of debt securities can enter into an agreement with a depository or custodian eligible to operate in IFSC for issue of the debt securities, for the purpose of holding and safekeeping of such securities and also to facilitate transfer, redemption and other corporate actions in respect of such debt securities.

Necessary disclosure regarding appointment of depository or custodian must be made in the information memorandum. The exception is where the issuer has a registered office or branch office in IFSC, it may service investors from such office and need not appoint depository or custodian.

g)  Relaxation from listing agreement:

The issuer must comply with the continuous listing requirements including corporate governance and such other conditions as specified in the listing agreement, entered into between the issuer and the stock exchange where such debt securities are sought to be listed: Provided, where the securities of the issuer are already listed on another stock exchange whether foreign or domestic, and it complies with listing agreement in respect of such securities, the Board may modify or relax certain conditions or requirements with regard to listing agreement in respect of debt securities issued under these Guidelines.

h)  Trading of debt securities:

The debt securities listed in stock exchanges can be traded on the platform of the stock exchange and such trades are cleared and settled through clearing corporation set up in IFSC as specified.

i)  Reporting of Financial Statements:

The entities issuing and/or listing their debt securities in IFSC must prepare their statement of accounts in accordance with IFRS/ US GAAP or accounting standards as applicable to them in their place of incorporation. In case an entity does not prepare its statement of accounts in accordance with IFRS/ US GAAP, a quantitative   summary   of   significant   differences   between   national   accounting standards and IFRS must be prepared by such entity and incorporated in the relevant disclosure documents to be filed with the exchange.