Consequent to the announcement in the Union Budget 2015 to set up an International Finance Services Centre (IFSC) in Gujarat International Finance Tec-City (GIFT City), SEBI passed the SEBI (International Financial Services Centres) Guidelines, 2015, on 27 March, 2015, to be made effective from 1 April, 2015. IFSC is meant to create a vibrant financial environment on the lines of finance centres in Singapore and Dubai. This would help capture billions of dollars worth of financial services that currently go to locations outside India, such as currency and bond derivative trading.
The Guidelines seek to regulate financial services relating to securities market in the IFSC created under Section 18(1) of the Special Economic Zones Act, 2005. The Guidelines allow domestic and foreign entities to undertake a variety of activities relating to securities market in the IFSC, subject to SEBI’s approval. Any Indian recognised stock exchange or stock exchange of a foreign jurisdiction may set up a subsidiary, wherein it holds atleast 51% of the paid-up equity share capital, to carry on activities of a stock exchange in the IFSC. Further, a stock exchange can be set up with Rs. 25 crore capital, as against the normal requirement of Rs. 100 crore (though this will have to be raised to Rs. 100 crore within 3 years). Similar provisions have been made in relation to clearing corporation sand depositories. Further, stock exchanges can also set up clearing corporations in the IFSC.
Further, all entities in the IFSC would have to comply with IOSCO principles, principles of Financial Market Infrastructures (FMIs) and the governance norms as specified by SEBI. The Guidelines provide for dealing in equity shares of a company incorporated outside India, depository receipts, debt securities, currency and interest rate derivatives and index based derivatives. Domestic companies intending to raise capital in the IFSC in a currency other than Indian Rupee shall be subject to the Foreign Currency Depository Receipts Scheme, 2014 and foreign companies intending to raise capital shall have to comply with the provisions of the Companies Act, 2013 and the SEBI (ICDR) Regulations, 2009.
The Guidelines clearly indicate that the entities operating in the IFSC will be governed by the overall framework of securities regulations, with certain carve outs as specified in the Guidelines. This would help set up market infrastructure in such centres with relative ease and lead to greater capital market activities. However, for this important venture to succeed there has to be clarity on issues relating to taxation of these entities operating in the financial special economic zones, along with close coordination between the Government of India, RBI and SEBI.