Under the revised framework, FPIs are prohibited from issuing ODIs with derivatives as their underlying assets or to hedge their ODI positions in India using derivatives. Existing ODI with derivatives as underlying must be redeemed within one year of issue of circular.
In addition, FPIs can now issue ODIs only through a separate and dedicated FPI register, which excludes proprietary investments. SEBI has mandated detailed disclosure of ownership, financial interest, and control in ODIs by all entities involved.
“SEBI has issued a bold circular to reshape offshore derivative instruments. The move is aimed at increasing transparency, reducing systemic risks and aligning foreign investment with market conditions in India in the face of regulatory loopholes,” said Nikunj Saraf, Vice President, Choice Wealth.
While stricter standards may increase compliance costs and deter short-term players, experts believe the measures will attract long-term institutional investors who value transparency and market stability. “By reducing speculative positions, SEBI’s reforms could make the equity market more resilient,” Saraf added.
The changes are expected to reshape the foreign investment landscape in India, balancing market integrity with regulatory oversight.