RBI/2009-10/393
A.P. (DIR Series) Circular No.47
April 12, 2010
To
All Category – I Authorised Dealer banks
Madam / Sir,
Maintenance of Collateral by Foreign Institutional Investors (FIIs)
for transactions in the cash segment
Attention of Authorised Dealer Category - I (AD Category-I) banks is invited to
Foreign Exchange Management (Transfer or Issue of Any Foreign Security)
Regulations, 2004 notified vide Notification No. FEMA 120/RB-2004 dated July 7,
2004 and Foreign Exchange Management (Transfer or Issue of Security by a Person
Resident Outside India) Regulations, 2000, notified vide Notification No. FEMA
20/2000-RB dated May 3, 2000, as amended from time to time and
A.P. (DIR Series)
Circular No. 4 dated July 28, 2006.
- Presently, FIIs are permitted to offer cash and foreign sovereign securities
with AAA rating as collateral to the recognized Stock Exchanges in India for
their transactions in the derivative segment. As per the extant Securities and
Exchange Board of India (SEBI) norms, the FIIs are required to post collaterals
for their transactions in the cash segment of the market. It has been decided,
in consultation with the Government of India and the SEBI, to permit the FIIs to
offer domestic Government Securities (acquired by the FIIs in accordance with
the provisions of Schedule 5 to Notification No. FEMA 20/2000-RB dated May 3,
2000, as amended from time to time and subject to the overall limits specified
by the SEBI from time to time; the current limit being USD 5 billion), and
foreign sovereign securities with AAA rating, as collateral to the recognized
Stock Exchanges in India, in addition to cash, for their transactions in the
cash segment of the market. However, cross-margining of Government Securities
(placed as margins by the FIIs for their transactions in the cash segment of the
market) shall not be allowed between the cash and the derivative segments of the
market. The operational guidelines in this regard will be issued separately by
the SEBI.
- The existing guidelines on collateral for the FIIs transactions in the
derivative segment shall remain unchanged.
- Necessary amendments to the Foreign Exchange Management (Transfer or Issue of
Security by a Person Resident Outside India) Regulations, 2000 notified vide
Notification No. FEMA 20/2000-RB dated May 3, 2000 will be issued separately.
- AD Category – I banks may bring the contents of this circular to the notice
of their constituents and customers concerned.
- The directions contained in this circular have been issued under sections
10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and
are without prejudice to permissions / approvals, if any, required under any
other law.
Yours faithfully,
(Salim Gangadharan)
Chief General Manager-in-Charge