Investment Management

Offshore Derivatives Instruments (Participatory Notes)

Offshore derivatives instruments (ODIs) are investment vehicles used by overseas investors not registered with the SEBI for an exposure in Indian equities or equity derivatives. They may not be registered with SEBI, either because they do not want to, or due to regulatory constraints for which they are not allowed to. It is a registered FII that makes purchases on behalf of these investors and the FII s affiliate issues those ODIs. ODIs include equity-linked notes, capped return notes, participating return notes, etc.

Participatory Notes (P-Notes) is one of the categories of ODIs. The underlying asset class could be stocks, and returns would be directly related to the appreciation in prices of those stocks.… Read the rest

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Regulations for investment’s by FII’s in India

FII Regulations in India:

Investment by Foreign Institutional Investors (FII’s) is regulated under SEBI (FII) Regulations, 1995. Following are some of important regulations by SEBI and RBI:

  • The total investments in equity and equity related instruments (including fully convertible debentures, convertible portion of partially convertible debentures and tradable warrants) made by a Foreign Institutional Investor in India, whether on his own account or on account of his sub- accounts, should be at least seventy per cent of the aggregate of all the investments of the Foreign Institutional Investor in India, made on his own account and through his sub-accounts.
  • The cumulative debt investment limit for FII investments in Corporate Debt is USD 15 billion.
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Double Taxation Avoidance Agreement (DTAA)

A major portion of international capital flows entering the Indian economy is aided by taxation laws and systems among countries like the Double Taxation Avoidance Agreement.

The phenomenal growth in international trade and commerce and increasing interaction among nations, citizens, residents and businesses of one country has extended their sphere of activity and business operations to other countries. A person earning any income has to pay tax in the country in which the income is earned (as Source Country) as well as in the country in which the person is resident. As such, the income is liable to be taxed in both the countries.… Read the rest

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Demutualization of Bombay Stock Exchange (BSE)

The change in the name of Asia’s oldest stock exchange, from the Stock Exchange, Mumbai to the Bombay Stock Exchange Ltd., (BSE Ltd.) is of more than cosmetic significance. Along with the change in name comes a new perspective, one brought about by a comprehensive change in its ownership and management. Until now, the BSE like most other exchanges in India was owned and managed by brokers, who also had the sole right to trade in the exchanges. Conflicts of interest were bound to arise in such situations. Until the advent of the National Stock Exchange in 1994, the BSE was India’s pre-eminent exchange, accounting for an overwhelmingly large proportion of the share market transactions of the country.… Read the rest

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Tax liability attached to a demutualized stock exchange

When a trading right is acquired, and a share is allotted to a member of an stock exchange by virtue of which he acquires a membership privilege against the extinguishment of the previous right of membership, no transfer of assets effectively takes place and neither of the acquisitions should therefore be deemed to be a transfer within the meaning of the word in the Income Tax Act. However, at the point of sale of any of these two rights, capital gains tax would be attracted.

Since the above processes are necessary to implement a policy announced by the Government, and in the larger interests of the securities market in India as well as in the interests of investors, it would be necessary to ensure that both the processes described above are tax neutral and no additional tax liability is attached either to the stock exchange or to a member of a stock exchange which is implementing an approved scheme of demutualization.… Read the rest

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Governance of the demutualized stock exchanges

In the past, in almost all the stock exchanges, the broker members of the governing boards have been critical in the governance of the stock exchanges. The reconstitution of the governing boards of the stock exchanges by SEBI, which reduced the broker representation on these boards to 50%, had helped in making the boards more independent and minimized the influence of brokers. However, in most stock exchanges on account of the brokers retaining posts of the officer bearers of the stock exchanges till recently viz. president, vice-president and treasurer, they continued to play a dominant role in the management of the stock exchange.… Read the rest

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