Monitoring of
Investments from
Countries Sharing
Land Border with India
OVERVIEW:
The Government of India issued new regulations, known as the Foreign Exchange Management (Non-debt Instruments) Amendment Rules, 2024 (NDI Rules), and the Companies (Listing of Equity Shares in Permissible Jurisdictions) Rules, 2024, on January 24, 2024.
These rules allow Indian public companies to directly list their equity shares on international exchanges located at the GIFT International Financial Services Centre (IFSC).
Following this announcement, the International Financial Services Centres Authority (IFSCA) released a Circular on February 9, 2024, regarding the direct listing of Indian companies on stock exchanges within IFSC.
The Circular outlines compliance procedures for various entities such as stock exchanges, broker dealers, depositories, depository participants, and custodians (referred to as Market Infrastructure Institutions/MIIs). These entities, along with equity shareholders of listed companies on International.
Exchanges and their beneficial owners, are required to adhere to the provisions of clause 2 of Schedule XI of the NDI Rules as specified in the Circular.
WHAT DOES THE CIRCULAR ENTAIL?
KYC and CDD Requirements:
Market Infrastructure Institutions (MIIs) such as broker dealers, depository participants, and custodians must conduct thorough Know Your Customer (KYC) and Client Due Diligence (CDD) processes, including identifying beneficial owners, in line with the IFSCA (Anti Money Laundering, Counter Terrorist Financing and Know Your Customer) Guidelines, 2022. They need to maintain a list of clients who are citizens of or incorporated in countries sharing a land border with India. This list must be updated promptly and shared with the relevant stock exchanges and depositories within one working day of any updates.
Declaration by Clients:
Clients from countries sharing a land border with India must provide a signed declaration stating they will not hold equity shares of a public Indian company listed or proposed to be listed on an IFSC stock exchange without prior approval from the Central Government. Clients from other countries must declare that neither they nor any of their beneficial owners are situated in or citizens of countries sharing a land border with India.
Primary Market Issuance:
IFSC recognized stock exchanges must ensure that identified clients do not participate in the primary market issuance of equity shares of Indian companies listed on these exchanges without approval from the Central Government.
Secondary Market Trading:
Broker dealers and custodians in IFSC must prevent identified clients from buying equity shares of Indian companies listed on IFSC recognized stock exchanges without Central Government approval.
Off-Market Transfer:
The depository in IFSC must ensure that identified clients do not hold equity shares in Indian companies listed on recognized stock exchanges in IFSC without prior Central Government approval, through off-market transfers.
Monitoring and Surveillance by Stock Exchanges:
IFSC recognized stock exchanges are responsible for conducting market surveillance to monitor trading activity by identified clients in the secondary market. They must submit monthly reports to IFSCA on this surveillance activity.
CONCLUSION:
The Circular outlines comprehensive compliance mechanisms for various market infrastructure institutions (MIIs) involved in the direct listing of Indian companies on stock exchanges within the IFSC.
These measures primarily focus on ensuring adherence to KYC and CDD procedures, declaration requirements from clients, restrictions on primary and secondary market transactions, and monitoring of trading activities by identified clients.
The Circular aims to facilitate the smooth functioning of direct listings while addressing regulatory concerns, particularly regarding investments from countries sharing a land border with India.
