Liquidity Enhancement Scheme for Bullion Exchange

Introduction

On February 4, 2025, the International Financial Services Centres Authority (IFSCA) introduced the Liquidity Enhancement Scheme (LES) for Bullion Exchange, which allows the IFSC bullion exchange to create schemes aimed at improving the liquidity of illiquid commodity derivatives contracts. 

Key Points

1. Oversight by the Governing Board:

• The governing board must approve the scheme, which is valid for one year. 
• The board will monitor the scheme’s implementation and results quarterly. 

2. Requirements of the Scheme:

• The scheme must be objective, non-discriminatory, and maintain market integrity without compromising risk management. 
• It should define incentives for market makers, which can include discounts, cash payments, or shares with options and warrants. 

3. Disclosures:

• Half-yearly reports must be submitted to IFSCA, including board comments. 
• Any changes to the scheme must be disclosed 15 days in advance. 
• Monthly updates on the scheme’s outcomes must be posted online. 

4. Market Integrity:

• Monitoring systems must prevent trading solely for incentives and ensure trades are not manipulative. 
• The scheme must not impede market liquidity or cause mis-selling. 

5. Market Maker Obligations:

• The exchange should define and monitor obligations of liquidity enhancers and ensure transparency of any conflicts of interest. 

Conclusion

The LES aims to enhance liquidity in the bullion market while ensuring rigorous oversight and maintaining market integrity.

FAQs for Foreign Universities and Educational Institutions

On February 6, 2025 IFSCA has issued FAQs for Foreign Universities and Educational Institutions aiming to set up in GIFT City, clarifying regulatory, operational, and structural issues. This effort supports India’s goal to make GIFT IFSC a global education hub. With clearer guidelines, top international institutions can now enter India, benefiting students, professionals, and industry players. Looking forward to seeing how this unfolds.

Consultation paper on proposed Circular on Securitization requirements by overseas insurers or re-insurers

IFSCA has received requests from regulated entities to obtain insurance from overseas insurers or re-insurers based outside India or GIFT IFSC. After reviewing these requests and the lack of suitable products from local insurers, IFSCA has allowed these entities to take out insurance from overseas providers under certain conditions.

To gather feedback, IFSCA has released a consultation paper on a proposed Circular concerning securitization requirements for overseas insurers or re-insurers. The Proposed Circular applies to all entities regulated by IFSCA and outlines specific securitization requirements, which can include irrevocable letters of credit or bank fixed deposits. Overseas insurers must also maintain a fixed deposit marked for IFSCA or provide an irrevocable letter of credit from a different IFSC Banking Unit.

IFSCA amends provisions relating to transactions with person(s) resident in India of Framework for Aircraft Lease

IFSCA amended the Framework for Aircraft Lease on February 26, 2025. The changes allow lessors in IFSC to purchase assets from Indian manufacturers. Previously, lessors could not acquire assets if they would be used solely by residents in India. However, this restriction does not apply if the acquisition is from non-group entities, as part of a sale and leaseback for newly imported assets, or from manufacturers in India.

Clarification in relation to permissible transactions through the Special Non-Resident Rupee (SNRR) accounts of IFSC units

The International Financial Services Centres Authority (IFSCA) issued a circular on February 18, 2025, clarifying permissible transactions through Special Non-Resident Rupee (SNRR) accounts of IFSC units.

It states that IFSC units can use SNRR accounts for business-related transactions, such as administrative expenses and proceeds from scrap sales. However, all transactions for financial services must be received through an account with a Banking Unit in IFSC.

Revised conditions for on boarding a foreign entity as an RTP

The International Financial Services Centres Authority (IFSCA) has issued a circular regarding modifications to the eligibility criteria for foreign entities wishing to trade on Stock Exchanges in the International Financial Services Centre (IFSC) as Remote Trading Participants (RTP).

Key Points:
1. The IFSCA previously allowed foreign entities without a physical presence in IFSC to trade as RTPs (April 03, 2024). The initiative is gaining interest, prompting requests for changes in eligibility norms to enhance participation.

2. Modifications to eligibility criteria have been made, which include:

Regulated Entities:
• Must be regulated by their home country’s securities market regulator.
• Must be a resident of a country whose regulator is a signatory to the IOSCO-MMoU or has a bilateral MoU with IFSCA.
• Must not be from a jurisdiction identified by the Financial Action Task Force (FATF) as having strategic deficiencies in Anti-Money Laundering or Counter Terrorism Financing.
• Allowed to trade only on a proprietary basis and not on behalf of clients.
• Can only transact in cash-settled derivatives.
• Required to have an agreement with an IFSCA registered Clearing Member for transaction settlement.

Unregulated Entities:

• Must be members of specified Stock Exchanges.
• Must comply with the defined conditions for regulated entities.

3. Indian entities are not eligible to be on boarded as RTPs.

4. Stock Exchanges must follow IFSCA Anti Money Laundering guidelines and will define terms for RTP on boarding, including risk management measures.

5. Stock Exchanges have the flexibility to set net worth criteria and associated fees for RTPs and must implement the circular by updating their regulations.

6. The status of implementation must be communicated to IFSCA in the Monthly Development Report.

Conclusion:
This circular updates the previous guidelines for RTPs, enhancing accessibility for foreign entities to trade on IFSC Stock Exchanges, while ensuring compliance with regulatory standards to maintain market integrity.

International Financial Services Centres Authority (Fund Management) Regulations, 2025

On February 19, 2025, the International Financial Services Centres Authority (IFSCA) released the IFSCA (Fund Management) Regulations, 2025 (FM Regulations), which replace the IFSCA (Fund Management) Regulations, 2020, previously issued on April 13, 2022. The goal of the FM Regulations is to simplify business operations, lower compliance costs, and offer better investor protection in International Financial Services Centres (IFSC) funds while ensuring orderly growth in business activities.

Key Points:

Non-Retail Schemes:
• Minimum corpus requirement reduced from USD 5 million to USD 3 million.
• Validity of the Private Placement Memorandum (PPM) extended from 6 months to 12 months.
• Open-ended schemes may begin investments with USD 1 million, reaching a minimum corpus of USD 3 million within 12 months.
• FMEs can invest more than 10% in a scheme under certain conditions.
• Co-investment through Special Purpose Vehicles (SPVs) is allowed.
• Venture capital schemes need approval from 75% of investors to buy or sell certain securities.

Manpower Requirements:
• FMEs with USD 1 billion AUM must appoint an additional Key Managerial Personnel (KMP) within 6 months after the financial year.

Registered FMEs (Retail):
• Must have 5 years of experience and a net worth of at least USD 2 million.
• Listing of close-ended retail schemes on stock exchanges is optional if the investment is at least USD 10,000.
• A retail scheme cannot invest over 10% of its AUM in one company.

Portfolio Management Services (PMS):
• Minimum investment reduced to USD 75,000.
• Clients may transfer funds to a managed account.

Family Investment Funds (FIFs):
• FIFs can be established as companies or partnerships, maintaining a minimum corpus of USD 10 million within 3 years of registration.

Other Changes:
• Streamlined fit and proper requirements and permissions for FMEs to open branches in other jurisdictions.

Conclusion:
The FM Regulations aim to create a more favourable environment for fund management in IFSCs, enhancing accessibility for various investment schemes and providing clearer guidelines for compliance and investor protection.

RNM Capital Trust AIF CAT III in GIFT received SEZ approval and applied to IFSCA to start operations. RNM Capital FME IFSC LLP has also applied for an FPI license. With this positive development, we are looking forward to the formal launch of the RNM Capital Trust AIF.