What changed
Previously, FIIs could only offer cash and AAA-rated foreign sovereign securities as collateral in both cash and F&O segments. Now, corporate bonds are also allowed in the cash segment, and government securities and corporate bonds are permitted in the F&O segment. SEBI will issue separate operational guidelines for these changes.
What it means for you
This expansion gives FIIs more flexibility to use their Indian investments as collateral, potentially increasing their participation in Indian markets. For banks acting as custodians, this means new processes for verifying and holding these additional collateral types, and a need to update internal systems and client advisories accordingly.
What you must do
- Update internal policies to accept corporate bonds and government securities as collateral from FIIs in both cash and F&O segments.
- Inform FII clients about the new eligible collateral types and any documentation requirements.
- Coordinate with SEBI for operational guidelines and ensure compliance with their forthcoming circular.
- Review and amend any existing collateral management agreements with FIIs to reflect the expanded options.
Who it affects
AD Category-I banks, FIIs and their custodians, Stock exchanges in India
What specific securities are now allowed as collateral for FIIs?
FIIs can now use corporate bonds in the cash segment, and both government securities and corporate bonds in the F&O segment, in addition to cash and AAA-rated foreign sovereign securities already permitted.
Who will issue the operational guidelines for these changes?
SEBI will issue separate operational guidelines for implementing the new collateral options.
Does this circular affect any existing permissions or approvals?
No, the directions are without prejudice to any permissions or approvals required under any other law.