The RBI on Thursday introduced a scheme for trading and settlement of sovereign green bonds (SGrBs) in the International Financial Services Centre (IFSC) in India.
The scheme will apply to investments in SGrBs issued by the Government of India to eligible investors in the IFSC in India.
Investors can participate in the primary auctions of securities conducted by the Reserve Bank and transact in the secondary market for securities in the IFSC.
Under the scheme, investors are not permitted to repackage or write any derivative instrument on underlying securities held by them under the scheme. They also are not permitted to undertake repo transactions in such securities.
Investors who are also eligible to participate in the domestic market are not permitted to shift their securities to/from their onshore gilt/demat account to/from their demat/securities account in the IFSC.
Eligible IBUs (IFSC Banking Units: banking units set up in the IFSC) are not permitted to participate in the primary auctions under the scheme. However, they can undertake transactions in the secondary market.
Investors can trade in the secondary market in the IFSC with other investors and eligible IBUs. However, transactions between two eligible IBUs cannot be undertaken.
Eligible IBUs can trade with investors such that the transactions will be undertaken on a ‘back-to-back’ arrangement. The transaction between an eligible IBU and its parent bank/branch or subsidiary in India of the parent bank will be for due consideration (for a value transfer).
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Under a back-to-back arrangement, an eligible IBU undertakes a transaction in eligible securities with an eligible investor and, in turn, enters into an offsetting transaction with its parent bank in India in the case of an IBU of an Indian bank, or with the branch/subsidiary in India of its parent bank in the case of an IBU of a foreign bank.
The two legs of the back-to-back transaction must be undertaken on the same date, and the eligible IBUs cannot maintain any overnight open securities positions.
In the case of any open securities positions arising from settlement failures or unwinding of trades with investors, the eligible IBU must reverse the trade with its parent bank or branch/subsidiary in India of the parent bank on a T+0 settlement basis to close out any open securities positions.
The RBI said the scheme will come into force with immediate effect. The operational guidelines for participation in the scheme by entities in the IFSC will be issued by the IFSC Authority.