SEBI, by way of Circular dated December 17, 2024, has introduced additional measures to address the regulatory arbitrage with respect to Offshore Derivative Instruments (‘ODIs’) and FPIs with segregated portfolios. An overview of the key changes is set out below:

i.    FPIs cannot: (a) issue ODIs with derivatives as reference/underlying; and (b) hedge their ODIs with derivative positions on Indian stock exchanges. Existing ODIs with derivatives as underlying/reference are required to be redeemed by December 16, 2025;

ii.   ODIs issuing FPIs are required to obtain a separate dedicated FPI registration;

iii.  ODIs issuing FPIs are prohibited from issuing ODIs with derivatives as the underlying; and

iv.   introduction of additional disclosure requirements and restrictions, with effect from May 17, 2025, for certain classes of ODI subscribers to bring them on par with the disclosure requirements directly applicable to an FPI.