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In a recent consultation paper, Gujarat International Finance Tec City (GIFT City) has proposed draft regulations for the capital market intermediaries (CMIs) functioning out of GIFT City.
Several of the proposals hold relevance for Mutual Fund Distributors (MFDs) who are planning to explore the GIFT City ecosystem or planning cross-border operations.
Here are the key proposals that the paper talked about:
Regulatory control for broker-dealers with global market access: The paper highlights that the broker-dealers seeking to operate only in global markets are now allowed to obtain registration directly from IFSCA without requiring a trading member registration at IFSC stock exchanges.
It suggests that direct global access facilitates ease of doing business but there should be precautions because the lack of exchange oversight could lead to riskier behaviors.
Removal of friends from insider trading regulations: As of now, the GIFT IFSC requires that any employe of a CMI can not indulge in any insider training through their own account, their relatives’ or friends’.
The recent paper proposes to remove the regulation around friends because tracking the investment patterns of friends is not practical.
Grievance redressal: Along with the clients and investors, the IFSC has proposed to broaden the framework by including consumers of the CMIs in the grievance redressal mechanism.
Broadening the client category for the broker-dealers: It also proposes to include foreign omnibus structures as eligible clients for the broker-dealers who are catering directly to the global clients.
This proposal has been made to attract more foreign firms and improve cross-border participation.
Relaxation in reporting for broker-dealers: The recent document suggests that the broker-dealers without any trading activity on IFSC exchanges should be exempted from submitting additional reports to the exchange.
Lower compliance burden could encourage more distributors or advisory businesses to consider hybrid models incorporating global access.
Regulatory oversight and risks: It highlights that while allowing broker-dealers to set up cross-border businesses is a bold move, multiple risks like misuse of LRS limits, regulatory arbitrage, and insufficient oversight were flagged.
In order to tackle this, the IFSC paper suggests more clarity on operational boundaries, product restrictions, and capital adequacy norms.
