Sebis Double (H)Edged Sword On ODI Subscribers And Issuers

• SEBI restricts the use of the ODI route, disallowing ODI issuance on derivatives unless held for hedging purposes;
• Purpose seems two-fold – (i) curbing speculative trading in derivatives through the ODI route; and (ii) encouraging direct FPI participation;
• 'Hedging' defined to mean taking one-to-one position in those derivatives, which have the same underlying as the equity shares;
• Existing ODIs grandfathered until their date of maturity or December, 2020, whichever is earlier;
• Compliance officers or equivalent of the ODI Issuers to certify the 'hedging'.

In its continued efforts to restrict the synthetic route to access Indian markets through Offshore Derivative Instruments ("ODIs"), the Securities and Exchange Board of India ("SEBI") has issued a circular¹ prohibiting Foreign Portfolio Investors (the "FPIs" in their capacity as the "Issuers") from issuing ODIs that have derivatives as their underlying unless such exposure is for hedging purposes