Gujarat’s GIFT City was launched this year but trading on India’s first International Financial Services Centre (IFSC) so far has been allowed only in a few select products. In a clear signal that the government won’t allow its ambitious project to lose relevance, a Special Task Force (STF) set up by the Finance Ministry met up with sector regulators and GIFT officials last week in Delhi to highlight a number of concerns.
“The STF flagged worries about delay in product approval and, in some cases, also pointed out a certain ambiguity in RBI’s decisions,” a source told Moneycontrol.
A sticking point with the task force was the delay in pending approvals for rupee-dollar futures trading on the exchange. While trading of bullions, equity index and stock derivatives are permitted on the GIFT platform, rupee futures trading still awaits regulatory approval. In the past, the RBI is known to have expressed its uneasiness over allowing traders to hedge their currency positions as the Indian rupee isn’t fully convertible yet.
A fully convertible rupee will make it possible for foreign investors to repatriate his money into his local currency, which is currently prohibited in India.
The STF also questioned the lack of clarity on participation by non-resident Indians, sources tell Moneycontrol.
STF is also believed to have asked both the Reserve Bank of India and SEBI – regulators responsible for product approvals -- about the status on listing of debt instruments like bonds.
While other countries, most notably, Dubai and Singapore, allow listing of bonds, GIFT City is yet to do so.
The second source who attended the meeting told Moneycontrol: “Listing of the bonds will create more viability and create jobs. STF asked for the status of this product approval”.
SEBI, which recently eased rules for foreign investor participation in GIFT City, hasn’t allowed foreign portfolio investors to trade in commodities. The regulators are hesitant to give foreign investors access to commodities market in the GIFT City at the expense of the domestic commodities market from which they are barred now.
In its last board meeting, SEBI allowed Alternative Investment Fund Category III (AIF III) to invest in the domestic commodity segment. It is believed that SEBI will include FPIs in the GIFT City, too.
A source privy of the development, told Moneycontrol: “SEBI will allow the product (AIF 3) in GIFT City in a short time and the new chairman [Ajay Tyagi] is also keen to develop it along with bonds, currency and commodities.
"The Finance Ministry wants to make this place competent as compared to other developed IFSC markets," the source added.
SEBI has already issued guidelines for depositaries. However, CDSL and NSDL haven’t opened their accounts in the IFSC so far.
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