Investors will now be able to trade eight leading US stocks, which will gradually increase to 50. Currently, Indian investors buy US stocks through designated online brokers who have clearance from Indian and US regulators to offer such services.
NSE IFSC is a wholly owned subsidiary of the National Stock Exchange of India (NSE). Trading in the shares will be in the form of unsponsored certificates of deposit.
Here’s everything you need to know:
What is this exchange?
NSE IFSC (NSE International Exchange) incorporated on November 29, 2016, is a wholly owned subsidiary of National Stock Exchange of India Limited (NSE). Exchanges operating in the city of GIFT are permitted to offer corporate actions in any currency other than Indian Rupee. As a result, NSE IFSC, which launched trading on June 5, 2017, offers USD-denominated trades in various products.
NSE IFSC offers trading in various products including index derivatives, equity derivatives, currency derivatives, commodity derivatives and debt securities.
what is a NSE IFSC receipt?
It is a negotiable financial instrument in the nature of an unsponsored “certificate of deposit”, which means that it is a derivative product and investors can directly trade these 8 shares without having to to do so through registered online brokers. Investors have the ability to trade in fractional amounts of the underlying securities traded on US markets. Just as you buy shares in the domestic market, you can now buy shares in the United States and issue receipts against them, which will be known as NSEIFSC receipts.
What stocks can you trade?
NSE IFSC has so far received clearance to trade receipts for 50 US-based stocks. However, only 8 will be available to redeem from Thursday. These include in particular the following: Amazon, Tesla, Alphabet, Meta Platforms, Microsoft, Netflix, Apple and Walmart.
This will gradually be expanded to include others like Paypal, McDonalds, Johnson & Johnson, Nike Adobe, Berkshire Hathaway, Mastercard, Visa, Chevron, Morgan Stanley and JP Morgan. The release date is yet to be determined.
Investors will have the ability to trade in fractional quantity/value relative to the underlying stocks traded on US markets. “The proposed framework will make US equities affordable for Indian retail investors,” according to NSE-IFSC.
What’s the benefit?
It’s a matter of accessibility. Investing in US stocks is currently a long and expensive process. But it will be much less difficult and affordable now. “This offers Indian investors a new investment opportunity with a simple investment process and low costs. Compared to the underlying stocks traded in US markets, you will be able to trade in fractional amount value. Investors will be able to hold the certificates of deposit in their own GIFT City demat accounts and will be eligible for corporate action benefits on the underlying stock,” said Likhita Chepa, senior research analyst at CapitalVia Global Research.
Who can invest?
Person residing outside India, Non-Resident Indians and Person residing in India who is eligible under FEMA to invest funds overseas, to the extent permitted by the Reserve’s Liberalized Remittance Scheme Bank of India. However, US and Canadian residents are not allowed to invest through this instrument.
How can we invest?
Investors residing in India will need to open a demat account with the IFSC. Investors will be able to hold the certificates of deposit in their own demat accounts opened in GIFT City and will be entitled to receive corporate action benefits relating to the underlying stock. The investment can be made within the Liberalized Remittance Scheme (LRS) limits prescribed by the Reserve Bank of India (RBI), meaning it must be capped at $250,000 per annum (Rs 1.9 cr ).
How does the ratio work? If I buy a stock receipt, will I own a stock in this company?
Nope. A holder of NSE IFSC Receipts will have a pro rata beneficial interest in the underlying shares, which depends on the ratio in which the NSE IFSC Receipts are issued to an underlying share of the relevant underlying company. This ratio can be expressed as 1:N (example 1:100, 1:200, etc.) and is linked to the value of the underlying Share. For example, the ratio for Apple is 25, which means one Apple share equals 25 NSE IFSC receipts. For Amazon, the ratio is 200, which means one Amazon share equals 200 NSE IFSC receipts.
You can see the whole list here
What is the tax burden on this?
Receipts will be considered foreign assets for filing tax returns. Short term capital gains will be taxed at the slab rate while long term capital gains will be 20% with indexation.
What currency will we trade in?
The trading currency will be US dollars and the minimum note size is $0.01.
Trading will start at 8:30 p.m. on the first day until 2:30 p.m. the following day. Trading in US Equity Receipts will take place over two calendar days beginning at 8:00 p.m. on the first day and extending until 2:30 p.m. the following day. Such a trading cycle will be considered as one business day.
What about the price range?
There will be no fixed price range applicable but the exchange will have a dynamic price range mechanism, which will prevent the acceptance of execution orders which are placed beyond the price limits set by the stock Exchange. If the market is trending one way or the other, the dynamic price band will be loosened in the direction of the price movement during the day. For US Equity NSE Receipts, the dynamic price range will be set at 10% of the base price
What is the process for an Indian resident to redeem NSE IFSC receipts?
An Indian resident who wants to trade NSE IFSC receipts on the NSE IFSC platform must complete the below formalities before they can start trading:
• Register with an IFSCA registered trading member and meet KYC requirements
• Complete documentation for the Liberalized Remittance System (LRS) with the bank
• Transfer US dollars from his bank account to the commercial member’s bank account in GIFT IBU
• Confirm that the broker has credited their account
• Start trading NSE IFSC receipts on the NSE IFSC platform.
Can a commercial member benefit from the LRS?
LRS is not available for corporations, joint ventures, HUFs, trusts
Is intraday trading allowed? Is short selling allowed?
Yes. Intraday transactions are allowed in NSE IFSC receipts. However, with respect to Indian retail investors, intraday trading is permitted, provided that the investor:
• Will not be allowed to take positions/execute trades that would exceed the overall LRS
limit of USD 2,50,000 per fiscal year.
• Each transaction is adequately guaranteed by the full value of the transaction.
• Sale transactions must either be secured by NSE IFSC receipts or be a sale transaction against
an open buy position created during the day.
Short selling of NSE IFSC receipts by Indian retail investors will not be permitted
What is the settlement cycle for NSE IFSC receipts?
All NSE IFSC receipts bought and sold on the NSE IFSC platform must be settled through NSE IFSC Clearing Corporation Limited (NICCL).
Settlement of funds and IFSC NSE RECEIPTS will take place on day T+3.
What type of bank account does the investor need to send funds/receive payments?
There are no specific requirements for a bank account to be held by investors. Investors can either open a dollar account with any of the banks operating in the IFSC region or use their domestic INR account to make or receive payments from the broker.
What are the potential risks for an investor?
Investing in NSE IFSC Receipts involves risks. Some of the significant risks are:
1. General Price and Volatility Risk.
2. Liquidity Risk.
3. Underlying Stock Risk.
4. Risk of Cancellation and Termination of NSE IFSC Receipt.
5. Tax risks.
6. Other risks such as force majeure, changes in legislation, regulations, negotiation, etc.
Most trading holidays for NSEIFSC receipts on U.S. stocks will conform to U.S. holidays. However, some Indian festivals have also been incorporated. In 2022, the public holidays are April 15 (Good Friday), May 30 (Remembrance Day), June 20 (Juneteenth National Independence Day), July 4 (US Independence Day), August 15 (Indian Independence Day ), September 5 (Labor Day), October 24 (Diwali), November 24 (Thanksgiving) and December 26 (Christmas)