What changed
Earlier, FIIs could only offer AAA-rated foreign sovereign securities as collateral to recognised stock exchanges. Now, clearing corporations and their clearing members can open and maintain demat accounts with foreign depositories to hold, pledge, and transfer these securities. They can also remit proceeds from corporate actions and liquidate the securities if needed.
What it means for you
This move simplifies collateral management for FIIs in the Indian derivatives market, reducing operational friction. For banks acting as AD Category-I, it means facilitating these new account openings and remittances for clients. It also enhances the attractiveness of Indian exchanges for foreign investors by aligning with global practices.
What you must do
- Inform your FII clients and constituents about the new facility to open demat accounts abroad for collateral securities.
- Ensure compliance with SEBI guidelines when processing requests for opening demat accounts or remitting proceeds.
- Advise clearing corporations to submit monthly reports on foreign sovereign security balances to RBI by the 10th of the following month.
Who it affects
AD Category-I banks, SEBI-approved clearing corporations, Clearing members of stock exchanges, Foreign Institutional Investors (FIIs)
What types of securities can be held in these new demat accounts?
Only foreign sovereign securities with AAA rating that are offered as collateral by FIIs for their derivative transactions.
Do we need separate RBI approval for each demat account opening?
No, the circular permits this under the existing FEMA regulations, subject to SEBI guidelines. However, AD banks must ensure all transactions comply with FEMA and SEBI rules.
What reporting is required for clearing corporations?
Clearing corporations must report the monthly balances of foreign sovereign securities held as non-cash collateral to RBI's Foreign Investment Division by the 10th of the following month.