Offshore Derivative Instruments in India

SEBI or Securities Exchange Board of India regulates the trading of Offshore Derivative Instruments in India. The Offshore Derivative Instruments like Participatory Notes, Capped Return Notes, Participating Return Notes and Equity Linked Notes are mostly traded in India.
Offshore Derivative Instruments that are mostly traded in India are Participatory Notes, Capped Return Notes, Participating Return Notes and Equity Linked Notes. In India, SEBI or Securities Exchange Board of India, supervises the issuance and trading of the Offshore Derivative Instruments.

According to the rules and regulations of SEBI, every incidence of Offshore Derivative Instrument Issuance should be reported to SEBI. Not, only in the case of issuance, but also in case of redemption of Offshore Derivative Instruments, SEBI is required to be notified.

Renewal and Cancellation of any Offshore Derivative Instrument are also required to be done by informing the Securities and Exchange Board of India. All these notifications to SEBI are required to be made on a monthly basis.
Actually, by exercising these rules SEBI wants to monitor the levels of investment, made by the Foreign Institutional Investors. It can be mentioned here, that, the monthly reports submitted by the Foreign Institutional Investors to SEBI, revealed an increasing trend of Offshore Derivative Instruments trading.

In the last half of the year 2003, a Technical Committee was constituted out of the SEBI regulated entities, in order to monitor the trading of Participatory Notes. Representatives from SEBI, Reserve Bank of India and National Stock Exchange were present in this committee.

In October 2003, this committee discussed some important issues regarding the trading Participatory Notes. After examining the concerns in detail, the committee discussed whether the restrictive use of Participatory Notes is possible in India. The Committee also gave a thought over phasing out those Participatory Notes, which are non-compliant with the newly generated restrictions. In order to solve all the problems, the committee once thought of prohibiting the issuance of Participatory Notes.

But, then it realized that imposing complete ban on issuance of Participatory Notes was not actually possible. So, the Committee issued certain recommendations, which suggested about the issuance of Participatory Notes, only by the regulated entities on fulfillment of some definite requirements.

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Last Updated on : 1st August 2013

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