Tag Archives: custodian

clearing membership

IFSCA has vide its circular dated 15th September, 2021 allowed IFSCA recognized non bank custodians who have set up entity through their branch in IFSC GIFT City to become a clearing member. Earlier they had allowed overseas entities to operate as a clearing member through their branch office. So this i guess is for the Indian non bank custodians to operate as a clearing member through their branch office. Some conditions are stipulated as under:

https://ifsca.gov.in/Viewer/Index/228

Non-Bank Entity recognised as a custodian by IFSCA

  1. Any non-bank entity recognised as a custodian of assets/securities by IFSCA through the branch structure, shall be permitted to become a Clearing Member of a Clearing Corporation in GIFT-IFSC. For this purpose, the entity shall comply with the following conditions:
    a) The entity can clear and settle trades only of its custodial clients
    b) The entity should be ring fenced financially, technologically, and operationally from its parent company and its functions, as a clearing member, shall be limited only to clearing and settlement services of its custodial clients.
    c) The entity shall ensure financial segregation by allocating funds to the tune of USD 1,500,000 (USD 1.5 mn) towards its clearing and settlement operations. The entity shall submit a declaration to the Authority in this regard.
    d) The entity shall participate in the Settlement Guarantee Fund contribution (SGF), as decided by the clearing corporation from time to time.
    e) The total exposure which the entity shall take on behalf of its registered clients shall be determined by its Board.
    Additional requirements
  2. All the other fees applicable to a clearing member in GIFT-IFSC shall be applicable to such an entity.
  3. The entity shall comply with all the necessary rules, bye-laws and guidelines prescribed by the clearing corporation with which it is registered as a clearing member and the Authority from time to time.
  4. The entity shall have adequate mechanisms for the purposes of reviewing, monitoring, and evaluating the controls, systems, procedures and safeguards.

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custodian of assets/ securities at IFSC

IFSCA circular dated 24th February, 2021 allowing custodians of assets/ securities to set up branch office at GIFT-IFSC. Salient features are as under:

Entity registered and regulated in India as a custodian

  1. Any entity registered as a custodian with the Securities and Exchange Board of India (SEBI) shall be permitted to provide custodial services in GIFT-IFSC, by establishing a branch at GIFTIFSC. The branch established shall be subject to prior approval by the Authority and shall comply with the following conditions:
    a) The entity shall adequately ring fence the operational, technological and financial aspects of the branch in GIFT-IFSC from its domestic operations.
    b) The entity shall ensure financial segregation by allocating funds to the tune of USD 700,000 towards its IFSC branch. The entity shall submit a declaration to the Authority in this regard.
    Entity registered and regulated in overseas jurisdictions
  2. Any entity regulated as a custodian in a foreign jurisdiction, shall be permitted to provide custodial services by establishing a branch at GIFT-IFSC. The branch established shall be subject to prior approval by the Authority and shall comply with the following conditions:
    a) The entity is from a Financial Action Task Force (FATF) compliant jurisdiction
    b) The entity is registered as a custodian and regulated by a securities market regulator in its home jurisdiction
    c) The entity shall adequately ring fence the operational, technological and financial aspects of the branch in GIFT-IFSC from its overseas operations
    c) The entity shall ensure financial segregation by allocating funds to the tune of USD 700,000 towards its IFSC branch. The entity shall submit a declaration to the Authority in this regard
    d) The entity should have a minimum net worth of USD 7 million
  3. Any entity regulated as a capital market intermediary in a foreign jurisdiction, shall be permitted to provide custodial services by establishing a branch at GIFT-IFSC. The branch established shall be subject to prior approval by the Authority and shall comply with the following conditions:
    a) The entity is from a Financial Action Task Force (FATF) compliant jurisdiction
    b) The entity is registered as a capital market intermediary and regulated by a securities market regulator in its home jurisdiction
    c) The entity shall adequately ring fence the operational, technological and financial aspects of the branch in GIFT-IFSC from its overseas operations.
    d) The entity shall ensure financial segregation by allocating funds to the tune of USD 3 million towards its IFSC branch. The entity shall submit a declaration to the Authority in this regard
    d) The entity should have a minimum net worth of USD 35 million
    Entity not falling under any of the above categories
  4. Any entity shall be permitted to provide custodial services by establishing a subsidiary at GIFT-IFSC. The subsidiary established shall be subject to prior approval by the Authority and comply with the following conditions:
    a) The entity is from a Financial Action Task Force (FATF) compliant jurisdiction
    b) The subsidiary should have a net worth to the tune of USD 70 million. The entity shall submit a declaration to the Authority in this regard.
    Additional requirements
  5. The entity shall obtain a certificate of recognition from the Authority prior to commencement of operations of its branch or subsidiary, whichever is applicable.
  6. All the other fees applicable to a custodian in IFSC shall be applicable to such a branch or subsidiary of the entity.
  7. An entity desirous of obtaining a certificate of recognition as a custodian shall submit an application form provided at Annexure I, along with supporting documents, to the Authority. The application shall be accompanied with an application fee of USD 1000 and a recognition fee of USD 10,000. In the event the Authority refuses to grant recognition to the applicant, the
    recognition fee shall be refunded to the applicant.
  8. The certificate of recognition granted by the Authority shall be valid for a period of three years from the date of grant of recognition or its renewal.
  9. The branch office shall have adequate mechanisms for the purposes of reviewing, monitoring, and evaluating the controls, systems, procedures and safeguards.
  10. The branch office shall appoint a compliance officer who shall be responsible for monitoring the compliance of the Act, rules and regulations, notifications, guidelines, instructions, etc., issued by the Authority or the Central Government.

https://ifsca.gov.in/Viewer/Index/153

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monitoring foreign holding in depository receipts

SEBI vide its circular dated 1st October, 2020 has laid down a framework for monitoring foreign holding in depository receipts. Gist of the framework given below:

  1. Listed Company shall appoint one of the Indian Depository as the Designated Depository for the purpose of monitoring of limits in respect of Depository Receipts.
  2. The Designated Depository in co-ordination with Domestic Custodian, other Depository and Foreign Depository (if required) shall compute, monitor and disseminate the Depository Receipts (DRs) information as prescribed in the framework. The said information shall be disseminated on website of both the Indian Depositories. For this purpose, the Designated Depository shall act as a Lead Depository and the other depository shall act as a Feed Depository.
  3. Domestic Custodian shall:
    3.1.Provide one-time details of DRs in the format and manner as may be prescribed by the Indian Depositories.
    3.2.Provide the requisite information as may be prescribed by Designated Depository for the purpose of computation of information in respect of Depository Receipts as and when requested.
    3.3.Ensure that the underlying permissible securities, pertaining to a listed company, against which DRs are issued in the Permissible Jurisdiction, are held in a demat account, under a separate Type & Sub-Type as prescribed by the Indian Depositories for the purpose of issue of DRs.
    3.4.Provide certificate / declaration / information, to the Designated Depository in the prescribed format upon termination/cancellation of DR program. For this, the issuer or Foreign Depository shall be required to report such termination / cancellation to the Domestic Custodian.
  4. Procedure for the purpose of monitoring of limits
    4.1.The Designated Depository shall forward the list of such companies (ISINs) for which it will be monitoring the DR issuance to Feed Depository. For any addition or deletion of ISINs, the Designated Depository shall communicate to the Feed Depository regarding the same through Incremental information sent on a periodic basis.
    4.2.Feed Depository shall provide the ISIN wise demat holdings of investors tagged with separate sub-type to the Designated Depository on a daily basis.
    4.3.The Designated Depository shall ascertain the details of holdings pertaining to Foreign Depository lying under demat account(s) tagged under such separate Type & Sub-Type as well as other investors with ‘DR’ sub type held at both depositories and consolidate such holdings to arrive at the outstanding Permissible Securities against which the DRs are outstanding.
    4.4.Calculation of headroom i.e. ‘the limit up to which Permissible Securities can be converted to DRs’, may be undertaken in the following manner:

  1. 4.5.The Indian Depositories shall exchange with each other their respective list of companies, for dissemination of DR headroom related information, which shall be consolidated by both depositories and thereafter published on their respective websites.
  2. Re-issuance mechanism
    5.1.For the purpose of re-issuance of permissible securities, a Foreign Investor shall request SEBI registered Broker with requisite quantity of securities (based on available headroom) required for re-issuance of depository receipts which shall be forwarded to the Domestic Custodian.
    5.2.Based on last available headroom disseminated by Designated Depository, the Domestic Custodian shall grant approval (T- day where T is date of approval granted by Domestic Custodian) to such request received from SEBI registered Broker for re-issuance purpose which shall be valid for a period of 3 trading days (T+3) from the date of approval of request granted by Domestic Custodian.
    5.3.The Domestic Custodian shall report such request approvals along with requisite quantity granted to Designated Depository on same day (i.e. T day) and based on which the Designated Depository shall block the quantity for the purpose of calculation of Headroom.
    5.4.The Domestic Custodian shall report the status of utilisation of such approved request to the Designated Depository upon receipt of securities in the demat account of Foreign Depository for the purpose of calculation of Headroom. The domestic custodian shall report the final utilisation status of such approved request with respect to receipt of securities on D+1 basis (where D is a date of credit of security in the Foreign Depository’s account) before such time as may be prescribed by Designated Depository. In case of non-receipt of securities within the specified timeline, Custodian shall unblock the requisite quantity of approval granted and report the same to Designated Depository.
  3. Monitoring of Investor group limits
    6.1.FPI shall report the details of all such FPIs forming part of the same investor group as well as Offshore Derivative Instruments (ODI) subscribers and / or DR holders having common ownership, directly or indirectly, of more than fifty percent or on the basis of common control, to its Designated Depository Participant (DDP). The investor group may appoint one such FPI to act as a Nodal entity for reporting the aforesaid grouping information to its DDP in the format enclosed at Annexure A.
    Further, such Nodal FPI shall report the investment holding in the underlying Indian security as held by ODI subscriber and / or as DR holder, including securities held in the Depository Receipt account upon conversion (‘DR conversion’ account), to its Domestic Custodian on a monthly basis (by the 10th of every month) in the format enclosed at Annexure B. Similarly, the FPIs who do not belong to the same investor group shall report such investment holding details in the underlying Indian security as ODI subscriber and / or as DR holder, including
    securities held in the ‘DR conversion’ account, to its Custodian in the aforesaid format on a monthly basis (by 10th of the month).
    6.2.The DDP shall report FPI grouping information as reported by Nodal FPI to such Indian Depository (by 17th of the month) where FPI group demat accounts are held in the manner and format as specified by such Indian Depository. Similarly, the Custodian of Nodal entity (who also happen to be the DDP) shall report the investment holdings in the underlying Indian security as held by the ODI subscriber and / or DR holder in respect of the aforesaid FPI group on monthly basis to such Indian Depository (by 17th of the month) where FPI group demat accounts are held in the manner and format as specified by such Indian
    Depository.
    6.3.The Depository which monitors the FPI group limits shall club the investment pertaining to DR holding, ODI holding and FPI holding of same investor group and monitor the investment limits as applicable to FPI group in a Listed Indian company on a monthly basis. However, in respect of FPIs which do not belong to the same investor group, responsibility of monitoring the investment limits of FPI shall be with the respective DDP / Custodian. The Custodian of such FPIs not forming part of investor group shall club the investment as held by FPIs as well as
    investment as held by such FPI in the capacity of ODI subscriber and / or DR holder and monitor the investment limits as applicable to single FPI. In case where the investment holding breaches the prescribed limits, the Indian Depository / Custodian, as the case may be, shall advise the concerned investor / investor group, to divest the excess holding within 5 trading days similar to requirement prescribed under SEBI Circular dated November 05, 2019 on ‘Operational Guidelines for FPIs & DDPs under SEBI (Foreign Portfolio Investors), Regulations 2019 and for Eligible Foreign Investors.

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