Reserve Bank of India on Monday allowed foreign institutional investors to offer domestic and foreign government securities as collateral to stock exchanges for cash segment transactions. According to market regulator Securities and Exchange Board of India’s regulations, FIIs are required to post collaterals for their transactions in the cash segment of the market.
So far, FIIs have been allowed to offer cash and AAA-rated foreign sovereign securities as collateral only for the derivatives segment.
“It has been decided to permit the FIIs to offer domestic Government Securities (the current limit being $5 billion), and foreign sovereign securities with AAA rating, as collateral to the recognised stock exchanges in India, in addition to cash, for their transactions in the cash segment of the market,” RBI said.
The statement said the operational guidelines in this regard will be issued separately by the Sebi.
As per the RBI data, FII investments in government treasury bills and other instruments, have risen from Rs 1,732 crore (Rs 17.32 billion) in 2006-07 to Rs 10,522 crore (Rs 105.22 billion) in 2008-09.
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Maintenance of Collateral by Foreign Institutional Investors (FIIs) for transactions in the cash segment
RBI/2009-10/393
A.P. (DIR Series) Circular No.47
April 12, 2010
To
All Category – I Authorised Dealer banks
Madam / Sir,
Maintenance of Collateral by Foreign Institutional Investors (FIIs) for transactions in the cash segment
Attention of Authorised Dealer Category – I (AD Category-I) banks is invited to Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations, 2004 notified vide Notification No. FEMA 120/RB-2004 dated July 7, 2004 and Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000, notified vide Notification No. FEMA 20/2000-RB dated May 3, 2000, as amended from time to time and A.P. (DIR Series) Circular No. 4 dated July 28, 2006.
2. Presently, FIIs are permitted to offer cash and foreign sovereign securities with AAA rating as collateral to the recognized Stock Exchanges in India for their transactions in the derivative segment. As per the extant Securities and Exchange Board of India (SEBI) norms, the FIIs are required to post collaterals for their transactions in the cash segment of the market. It has been decided, in consultation with the Government of India and the SEBI, to permit the FIIs to offer domestic Government Securities (acquired by the FIIs in accordance with the provisions of Schedule 5 to Notification No. FEMA 20/2000-RB dated May 3, 2000, as amended from time to time and subject to the overall limits specified by the SEBI from time to time; the current limit being USD 5 billion), and foreign sovereign securities with AAA rating, as collateral to the recognized Stock Exchanges in India, in addition to cash, for their transactions in the cash segment of the market. However, cross-margining of Government Securities (placed as margins by the FIIs for their transactions in the cash segment of the market) shall not be allowed between the cash and the derivative segments of the market. The operational guidelines in this regard will be issued separately by the SEBI.
3. The existing guidelines on collateral for the FIIs transactions in the derivative segment shall remain unchanged.
4. Necessary amendments to the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000 notified vide Notification No. FEMA 20/2000-RB dated May 3, 2000 will be issued separately.
5. AD Category – I banks may bring the contents of this circular to the notice of their constituents and customers concerned.
6. The directions contained in this circular have been issued under sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions / approvals, if any, required under any other law.
Yours faithfully,
(Salim Gangadharan)
Chief General Manager-in-Charge
