Regulation 15A - Conditions for issuance of offshore derivative instruments. - Securities And Exchange Board of India (Foreign Institutional Investors) Regulations, 1995

1 [Conditions for issuance of offshore derivative instruments. 15A. (1) No foreign institutional investor may issue, or otherwise deal in offshore derivative instruments, directly or indirectly, unless the following conditions are satisfied: (a) such offshore derivative instruments are issued only to persons who are regulated by an appropriate foreign regulatory authority; (b) such offshore derivative instruments are issued after compliance with know your client norms: Provided that where at the commencement of the Securities and Exchange Board of India (Foreign Institutional Investors) (Amendment) Regulations, 2008, any person other than a person regulated by an appropriate foreign regulatory authority is holding offshore derivative instruments issued by or on behalf of the foreign institutional investor, such foreign institutional investor shall ensure that they are cancelled, redeemed or closed out, before the thirty first day of March, 2009. (2) A foreign institutional investor shall ensure that no further issue or transfer is made of any offshore derivative instruments issued by or on behalf of it to any person other than a person regulated by an appropriate foreign regulatory authority. 2 [(3). Omitted by the SEBI (Foreign Institutional Investors) (Second Amendment) Regulations, 2008 w.e.f 30-10-2008] 3 [(4) Omitted by the SEBI (Foreign Institutional Investors) (Second Amendment) Regulations, 2008 w.e.f 30-10-2008] 4 [(5) Omitted by the SEBI (Foreign Institutional Investors) (Second Amendment) Regulations, 2008 w.e.f 30-10-2008] (6) On and from the commencement of the Securities and Exchange Board of India (Foreign Institutional Investors) (Amendment) Regulations, 2008, no sub-account shall, directly or indirectly, issue offshore derivative instruments: Provided that offshore derivative instruments issued directly or indirectly by a sub-account, before such commencement and outstanding as at such commencement shall be cancelled or redeemed or closed out before the thirty first day of March 2009. 5 [(7) Omitted by the SEBI (Foreign Institutional Investors) (Second Amendment) Regulations, 2008 w.e.f. 30-10-2008] Explanation I: For the purpose of this regulation, - (i) offshore derivative instrument means any instrument, by whatever name called, which is issued overseas by a foreign institutional investor against securities held by it that are listed or proposed to be listed on any recognised stock exchange in India, as its underlying; 6 [ii] Omitted by the SEBI (Foreign Institutional Investors) (Second Amendment) Regulations, 2008, w.e.f.30-10-2008. Explanation II: For the purposes of sub-regulation (2) and the proviso thereto, the expression person regulated by an appropriate foreign regulatory authority means and includes the following, namely:- (i) any person that is regulated/supervised and licensed/registered by a foreign central bank; (ii) any person that is registered and regulated by a securities or futures regulator in any foreign country or state; (iii) any broad based fund or portfolio incorporated or established outside India or proprietary fund of a registered foreign institutional investor or university fund, endowment, foundation, charitable trust or charitable society whose investments are managed by a person covered by clauses (i), or (ii) above.] ------------------- Notes: 1. Substituted by the SEBI (Foreign Institutional Investors) (Amendment) Regulations, 2008, w.e.f. 22-5-2008. Prior to substitution, Regulation 15A.(1) as amended by SEBI (Foreign Institutional Investors) (Second Amendment) Regulations, 20004 w.e.f. 3.02.2004 read as under: 15A. (1) A Foreign Institutional Investor or sub account may issue, deal in or hold, off-shore derivative instruments such as Participatory Notes, Equity Linked Notes or any other similar instruments against underlying securities, listed or proposed to be listed on any stock exchange in India, only in favour of those entities which are regulated by any relevant regulatory authority in the countries of their incorporation or establishment, subject to compliance of know your client requirement: Provided that if any such instrument has already been issued, prior to 3rd February 2004, to a person other than a regulated entity, contract for such transaction shall expire on maturity of the instrument or within a period of five years from 3rd February, 2004, whichever is earlier. (2) A Foreign Institutional Investor or sub account shall ensure that no further down stream issue or transfer of any instrument referred to in sub-regulation (1) is made to any person other than a regulated entity. 2. Prior to the omission, sub-regulation (3) of regulation 15A as inserted by SEBI (Foreign Institutional Investors) (Amendment) Regulations, 2008, w.e.f. 22-5-2008.and read as under: (3) No offshore derivative instruments shall be issued by or on behalf of a foreign institutional investor with derivatives tradable on any recognized stock exchange in India as underlying: Provided that where any such offshore derivative instruments had been issued prior to the commencement of the Securities and Exchange Board of India (Foreign Institutional Investors) (Amendment) Regulations, 2008 by or on behalf of a foreign institutional investor and are outstanding at such commencement, they shall be cancelled or redeemed or closed out before the thirty first day of March 2009: Provided further that such offshore derivative instruments issued before the commencement of the Securities and Exchange Board of India (Foreign Institutional Investors) (Amendment) Regulations, 2008 by or on behalf of a foreign institutional investor may be renewed upon their expiry after such commencement, so that the period of renewal ends before the thirty first day of March 2009. 3. Prior to the omission, sub-regulation (4) of regulation 15A as inserted by SEBI (Foreign Institutional Investors) (Amendment) Regulations, 2008, w.e.f. 22-5-2008.and read as under: (4) Where the total value of outstanding offshore derivative instruments issued by a foreign institutional investor or a sub-account as on the thirtieth day of September 2007 is more than forty per cent. of its assets under custody as on that date, further offshore derivative instruments may be issued only in lieu of offshore derivative instruments which are cancelled or redeemed or closed out: Provided that the amount raised through such further issuance of offshore derivative instruments shall not exceed the amount of offshore derivative instruments cancelled or redeemed or closed out: Provided further that additional offshore derivative instruments may be issued against the bonus shares allotted in respect of the equity shares against which offshore derivative instruments are already in existence. 4. Prior to the omission, sub-regulation (5) of regulation 15A as inserted by SEBI (Foreign Institutional Investors) (Amendment) Regulations, 2008, w.e.f. 22-5-2008.and read as under: (5) Where the total value of offshore derivative instruments issued against securities held by a foreign institutional investor or a sub-account as on the thirtieth day of September 2007 is less than forty per cent of its assets under custody as on that date, further issuance of offshore derivative instruments in any period of twelve months shall not exceed five per cent. of the total value of its assets under custody: Provided that such further issuance shall not result in the total value of offshore derivative instruments exceeding forty per cent of the assets under custody. 5. Prior to the omission, sub-regulation (7) of regulation 15A as inserted by SEBI (Foreign Institutional Investors) (Amendment) Regulations, 2008, w.e.f. 22-5-2008.and read as under: (7) Where offshore derivative instruments issued by or on behalf of a sub account are outstanding as on the thirtieth day of September 2007 and steps have been taken by the subaccount to obtain registration as a foreign institutional investor as on the date of commencement of the Securities and Exchange Board of India (Foreign Institutional Investors) (Amendment) Regulations, 2008, sub-regulations (4) and (5) and the provisos thereto shall apply as if the sub-account were a foreign institutional investor on the said date. 6. Prior to omission, Explanation I clause (ii) as inserted by SEBI (Foreign Institutional Investors) (Amendment) Regulations, 2008, w.e.f.22-5-2008 read as under: assets under custody on a particular date, in relation to a foreign institutional investor or a sub account, means the value of assets of the foreign institutional investor which are in custody of its custodian.