SEBI panel drafting norms for offshore derivative instruments

24 Jun 2025 GS 3 Economy
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What are Offshore Derivative Instruments (ODIs)?

  • ODIs are financial instruments used by foreign investors who are not registered with SEBI to invest in Indian securities.

  • These instruments are issued by Foreign Portfolio Investors (FPIs) to overseas clients.

  • Common ODI examples: Participatory Notes (P-Notes).

  • They derive their value from underlying Indian securities like stocks, bonds, or indices.

How they work:

  1. An FPI registered with SEBI buys Indian securities.

  2. The FPI issues ODIs (like P-Notes) to foreign clients based on these securities.

  3. The foreign client gets returns linked to the performance of the underlying Indian assets, without direct ownership.


Who Can Issue ODIs?

  • Only Foreign Portfolio Investors (FPIs) registered with SEBI under Category I are allowed to issue ODIs.

  • These Category I FPIs include:

    • Government and government-related foreign investors (e.g. central banks, sovereign wealth funds)

    • Regulated entities such as pension funds, insurance/reinsurance firms, and banks

    • Public retail funds (e.g. mutual funds)

    • Entities from FATF-compliant jurisdictions

 Permissible Underlying Securities

ODIs can only be issued against cash market instruments, such as:

  • Listed equity shares

  • Listed debt instruments

  • Government securities

  • Mutual fund units

  • Derivatives not allowed anymore (post-2024 reforms)

🔴 SEBI has barred ODIs from being linked to Indian derivatives.
ODIs must now be fully and directly hedged one-to-one using the same cash market securities.

 Disclosure and Transparency Norms

SEBI mandates enhanced KYC and ownership disclosures, including:

  • ODI subscribers must disclose beneficial ownership up to the natural person level, if:

    • Their equity ODI exposure in a single Indian corporate group is ≥ 50%

    • Their total equity positions in India exceed ₹25,000 crore

In such cases, dual reporting is mandatory:

  • One from the ODI issuer

  • One from the Designated Depository Participant (DDP)



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