The Securities and Exchange Board of India (SEBI) issued a circular on 24 May permitting segregated nominee account (SNA) structures in international financial services centres (IFSCs) to further ease market access for foreign investors in such centres. Under this framework, the orders of foreign investors are permitted to be routed through eligible SNA providers for trading on stock exchanges in the IFSC while adhering to regulatory requirements.
To provide SNA services to their end clients, SNA providers are required to register with the stock exchange/clearing corporation in the IFSC. SEBI-registered brokers in the IFSC, SEBI-registered foreign portfolio investors (FPIs), and trading/clearing members of international stock exchanges/clearing corporations that are regulated by a member of the Financial Action Task Force are eligible to seek registration as SNA providers.
The SEBI circular provides that the stock exchanges must lay down eligibility criteria/norms for SNA providers including net worth, which should not be less than that prescribed by other leading stock exchanges offering similar structures. The criteria/norms must also include clauses/provisions for obtaining information relating to the end clients of SNA providers if required.
As per the circular, stock exchanges, brokers and SNA providers are obliged to furnish SEBI with information relating to trades on stock exchanges in the IFSC that originate from SNA providers, including know your customer (KYC) details of their end clients, if requested. The circular also requires stock exchanges in the IFSC to ensure that the provisions of the Prevention of Money Laundering Act, 2002, and its rules, including those relating to capturing KYC information for sharing with the Central KYC Registry to the extent applicable to FPIs, are adhered to by SNA providers in respect to their end clients.
Under this framework, position limits are required to be monitored at end client level by stock exchanges/clearing corporations. All other provisions relating to risk management in the IFSC should also apply to end clients of SNA providers unless otherwise provided.
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