On March 21, 2025, the Securities Exchange Board of India (“SEBI”), issued a consultation paper on the facilitation to SEBI registered stock brokers to undertake securities market related activities in Gujarat International Finance Tech-city (“GIFT City”) under a Separate Business Unit(“SBU”) structure (“Consultation Paper”)[1]. The Consultation Paper invites public comments and suggestions, to be submitted at the latest by April 11, 2025.
The Consultation Paper provides a draft circular in Annexure A of the Consultation Paper (“Draft Circular”). The key highlights of the Draft Circular are as follows:
I. Elimination of Prior SEBI Approval for GIFT International Financial Services Centre (“IFSC”) Activities
- SEBI-registered stock brokers shall be proposed to no longer require specific approval from SEBI to conduct securities market-related activities in GIFT-IFSC.
- Such activities may be carried out under a Separate Business Unit (“SBU”) within the same stock broking entity.
II. Regulatory Framework for a SBU in GIFT-IFSC
- Policies related to eligibility criteria, risk management, investor grievances, inspection, enforcement, and claims is proposed to be specified by the respective regulatory authority governing the GIFT-IFSC.
- All activities of the SBU in GIFT-IFSC shall fall under the exclusive jurisdiction of the designated regulatory authority.
III. Key Safeguards for Regulatory Compliance
- Ring-Fencing of Activities: Stock brokers shall ensure complete segregation of securities market-related activities between their Indian operations and the SBU in GIFT-IFSC. An arm’s-length relationship shall be maintained.
- Exclusive Operations in GIFT-IFSC: The SBU in GIFT-IFSC shall not be permitted to engage in Indian securities market activities and shall be exclusively dedicated to providing services within GIFT-IFSC.
- Separate Accounts and Net Worth Calculation:
- Stock brokers shall maintain a separate account for their SBU on an arm’s-length basis.
- The net worth of the SBU shall remain distinct from that of the stock broker in the Indian securities market.
- Compliance with net worth requirements for stock brokers shall be assessed excluding the SBU’s accounts.
IV. Investor Grievance and Protection Mechanism
Since the SBU operates under a different regulatory jurisdiction, the Investor Protection Fund (IPF), Grievance Redressal Mechanism of stock exchanges, and SEBI’s SCORES platform shall not be available for investors availing services from the SBU in GIFT-IFSC.
V. Transition for Existing Subsidiaries and Joint Ventures
Stock brokers who have previously established subsidiaries or joint ventures for securities market-related activities in GIFT-IFSC after obtaining SEBI approval may now dismantle such entities and instead operate under an SBU structure within the parent stock broking entity.
[1] https://www.sebi.gov.in/reports-and-statistics/reports/mar-2025/consultation-paper-on-facilitation-to-sebi-registered-stock-brokers-to-undertake-securities-market-related-activities-in-gujarat-international-finance-tech-city-international-financial-services-cent-_92823.html