The commencement of Derivative trading in India dates back to the year\n2000 when it first obtained the final approval of SEBI. Though initially the\npermission was granted for index futures contracts only. Later it was allowed\nfor options and individual securities as well. <\/p>\n\n\n\n
In this blog, we would be discussing the role of offshore parent MNC\nin the Indian Derivative Market<\/a>. So let’s begin our journey.<\/p>\n\n\n\n Since its commencement, the Indian Derivative Market has\nwitnessed tremendous growth in terms of trading value and contracts. Despite witnessing\nsuch encouraging growth, many analysts believe that the Derivative Market was\nnot able to realize its full potential in terms of growth & trading. There\nwere various reasons for this phenomenon. One of such reasons is the lack of\nparticipation and flexibility for Offshore MNCs, which indulge in derivative\ntrading through their Indian subsidiaries.<\/p>\n\n\n\n Offshore Parent MNC can be defined as an entity incorporated in a foreign country having one or more subsidiary companies in India<\/a><\/strong> through which they enter into trading transactions in the Derivative Market.<\/p>\n\n\n\n These offshore MNCs and their Indian subsidiaries engaged in current account transactions in India are exposed to a number of currency risks. Due to numerous restrictions and prohibitions imposed by RBI on foreign investment<\/strong> transactions and cross-currency transactions, the options to involve in hedge transactions by the Parent MNCs were very limited. <\/p>\n\n\n\n Due to these reasons, the Derivative\nMarket was suffering greatly. It was\nhigh time the offshore MNCs were allowed to play their role in the development\nof the Indian Derivative\nMarket. Keeping this in view, the\nforeign entities and their subsidiaries have been requesting RBI from a long\ntime to relax these conditions and allow greater flexibility. <\/p>\n\n\n\n Finally, after many deliberations, the Reserve Bank of India through a circular dated 21st<\/sup> March 2017 allowed the participation of offshore Parent MNC in the Indian Derivative Market through their Indian subsidiaries. <\/p>\n\n\n\n Greater\noperational flexibility was allowed to Offshore MNCs and their Indian\nsubsidiaries, which are exposed to currency risk arising out of current account\ntransactions carried on in India.<\/p>\n\n\n\n Read More:<\/b> Qualified Foreign Investors (QFI) and their Investment Norms<\/a><\/mark>.<\/p><\/div>\n\n\n\n The circular further allowed the following role\/advantages\nto the Offshore Parent MNCs:<\/p>\n\n\n\n a) Right to entry into Indian Derivative<\/strong><\/p>\n\n\n\n Offshore Parent MNCs or their central treasury or regional treasury, which are located outside India can now directly enter into the Indian Derivative Market through their subsidiaries without any restrictions.<\/p>\n\n\n\n b)<\/strong> Permission for carrying on hedge activities by the Parent MNC<\/strong><\/p>\n\n\n\n With this\ncircular, the offshore Parent MNC of the Indian Subsidiary is allowed to carry\non hedging activities on behalf of the transaction risks that the Indian\nsubsidiary is exposed to for dealing in derivative transactions.<\/p>\n\n\n\n c) Permission to take on other\nactivities on behalf of its subsidiary<\/strong><\/p>\n\n\n\n On behalf\nof their Indian subsidiaries, the Offshore Parent MNCs are allowed to undertake\nall those activities which are allowed to be undertaken by the subsidiary\nitself.<\/p>\n\n\n\n d) Other permissions: <\/strong><\/p>\n\n\n\n Other\npermissions include the following:<\/p>\n\n\n\nDevelopments in the Indian Derivative\nmarket:<\/strong><\/h2>\n\n\n\n
What is an\nOffshore Parent MNC under Derivative Market? <\/strong><\/h2>\n\n\n\n
What was the scenario of the Indian Derivative Market before\nthe greater participation of Offshore Parent MNC was allowed?<\/strong><\/h2>\n\n\n\n
What is\nthe role of Offshore Parent MNCs in the Indian Derivative Market?<\/strong><\/h2>\n\n\n\n
Following conditions\nare to be fulfilled for enjoying the relaxations:<\/strong><\/h2>\n\n\n\n
Conclusion<\/strong> <\/h2>\n\n\n\n