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Authorised intermediaries can now enter into securities borrowing and lending agreements with clearing members in India, following market calls for the change.
The Securities and Exchange Board (SEBI) of India confirmed on 3 June that the country’s framework had been modified to allow authorised intermediaries such as agent lenders and prime brokers to directly enter into agreements with clearing members for the purpose of facilitating lending and borrowing of securities.
Under the new rules, an agreement must specify rights, responsibilities and obligations, and include basic conditions for lending and borrowing.
The agreement must also detail the “exact role” of authorised intermediaries and clearing members in relation to their clients.
Authorised intermediaries have to ensure that there will be no direct agreement between lender and borrower, despite market participants expressing a desire to move away from the country's stock exchange settlement system to a bilateral format.
The move follows SEBI’s decision to create a unified and simplified regulatory framework for foreign portfolio investments.
A new investor class, foreign portfolio investor (FPI), has been created, merging the three existing investor classes.
“It was envisaged that dispensing with the mandatorily requirement of direct registration with SEBI and adopting risk-based know-your-customer approach in [an] FPI regime would smoothen the entry process and onboarding experience of FPIs which desire to invest in the Indian securities market,” said SEBI in a statement.
The new FPI regime took effect on 1 June.
Designated depository participant Citi Securities Services India was among the first firms to register an FPI following implementation of the regime.
“The inherent attractiveness of the Indian markets, has kept India as a focal point of our securities business and we are pleased to roll out this new framework for our global clients,” commented Aashish Mishra, head of securities services at Citi in India.
"We have been continuously involved with the development of the securities markets here from being the first to enable securities lending and borrowing for our clients to facilitating the largest QFI investment to being the first custodian to offer e-voting facility for company board meetings for our clients," added Mishra.
