Markets regulator Securities and Exchange Board of India (Sebi) has issued a new framework for functioning of stock exchanges and clearing corporations that are setting up their operations in international financial services centers (IFSCs). The Securities and Exchange Board of India (Sebi) said all categories of exchange-traded products currently available for trading in stock exchanges will be eligible for trading in bourses operating in IFSCs. However, this is subject to prior approval of the market watchdog. Only non-agri commodity derivatives will be eligible for trading. Masala bonds, too, qualify, provided such bonds are listed. These exchange-traded products and masala bonds should be compliant with IOSCO (International Organization of Securities Commissions) and FATF (Financial Action Task Force) norms. With a single market structure to achieve synergies in terms of various operations, including ease of doing business, the regulator has asked bourses and corporations at IFSCs to ensure risk-management system and infrastructure as commensurate with trading hours at all times. Prior to commencement of their operations, exchanges at IFSCs would have to tie up with clearing corporations for clearing and settlement of their trades. Clearing corporations desirous of providing services at IFSCs will have to evolve a robust risk management framework in line with IOSCO principles for financial market infrastructures. Also, clearing corporations will have to comply with certain other norms, including margin framework. However, such corporations will have to require to conduct stress tests to ensure robustness of risk management framework. Clearing corporations will be ring-fenced down to the lowest level and their functions will be limited only to clearing and settlement and risk management. The capital of clearing corporations will not form part of net worth of their holding companies. Additionally, holding companies will not be allowed to extend any financial help to such clearing corporations if such entities become financially distressed. Market participants can avail of arbitration, mediation and other dispute resolution mechanisms offered by International Arbitration Centre to resolve disputes.
But, why this framework is being talked of here? Thats because it has set the stage for the launch of Gujarat International Finance Tec-City, or GIFT City. The moot question is if trading firms will take the bait. More importantly, even if they do, will they just set up servers in GIFT City to establish a presence, or will they set up shop with a full-fledged team? The success of GIFT City, in a true sense, depends on whether top financial market professionals are willing to relocate. As things stand, that still looks like a pipe dream. Garnering trading volumes, on the other hand, may not be that much of a hurdle. Indian trading firms can potentially fund an IFSC subsidiary to the extent of 400% of their net worth through the overseas direct investment (ODI) route. Of course, unlike IFSCs such as Dubai and Singapore, the paperwork and the number of approvals required is far greater with Indian IFSCs such as GIFT City. But firms may be willing to overlook this, given the chance to be associated with one of the prime minister’s pet projects. Modi’s government has said its smart-cities initiative would involve building new cities, including satellites to existing metropolises and modernize existing midsize cities. It still hasn’t settled on a final list of locations. Jaijit Bhattacharya, a partner at KPMG India’s infrastructure division, estimates that it will cost $20 billion to create a smart city, so 100 cities would cost around $2 trillion—about the size of the Indian economy. India has so far budgeted $7.5 billion.
GIFT city achieved financial closure in 2014 in the month of June to be precise. The estimated cost of various infrastructure in Phase-I of the project is Rs 1818 crore. This cost is to be funded by debt of Rs 1,157 crore and balance Rs 661 crore by equity and internal accruals over the next three years, as was reported in 2014. The debt requirement for developing Phase-I infrastructure of GIFT City of Rs 1,157 crore has been tied up with consortium of five banks led by Syndicate Bank. The other consortium banks are Bank of India, Bank of Baroda, Punjab & Sindh Bank and Corporation Bank. The funds will be utilised for developing the state-of-the-art infrastructure planned for the city which includes Road Network, District Cooling System, Automated Solid Waste Management system, Utility Tunnel, Smart ICT, Master Balancing Reservoir, Water and Sewerage treatment plant, Power distribution system and other infrastructure components……….