Sebi Makes It Easier For Stock Brokers To Enter GIFT City – Here’s How

The Securities and Exchange Board of India (Sebi) has allowed registered stock brokers to operate in the GIFT City’s International Financial Services Centre (IFSC) through separate business units (SBUs) without needing prior regulatory approval.

The regulator’s move aims to improve the ease of doing business for registered stock brokers.

Under the new framework, brokers can now set up an SBU within their existing firm. This eliminates the need to create a separate subsidiary or joint venture. However, the regulator has clarified that using a subsidiary to operate in GIFT-IFSC is still allowed.

“Matters related to policy, eligibility criteria, risk management, investor grievances, inspection, enforcement, claims etc. for SBU in GIFT-IFSC would be specified under the regulatory framework issued by the concerned regulatory authority, and all activities of the SBU in GIFT-IFSC would be under the jurisdiction of that regulatory authority,” Sebi said.

To clearly separate domestic operations in the securities market from those in GIFT-IFSC, Sebi has also outlined the following safeguards:

• Activities carried out by the SBU in GIFT-IFSC must be fully segregated and “ring-fenced” from the broker’s operations in the Indian securities market. The regulator said an “arm’s-length relationship” between the two must be maintained.

• The SBU in GIFT-IFSC must only carry out securities market activities that are allowed by the International Financial Services Centres Authority (IFSCA).

• Brokers must also maintain separate financial accounts for the SBU to ensure it functions independently.

• The SBU’s net worth must be kept separate from that of the Indian operations. The Indian broker’s net worth will be calculated without including the SBU’s assets, and the SBU must meet net worth requirements as defined by IFSCA.

While this makes it easier for brokers to expand into GIFT-IFSC, there’s an important catch: investors using SBU services won’t have access to Sebi’s grievance redressal platforms, such as SCORES or be protected by the Investor Protection Fund (IPF) of stock exchanges.

Sebi also said that brokers who have already set up a subsidiary or joint venture in GIFT-IFSC will have a choice to shut those set-ups and instead run their operations through an SBU within their existing broking firm.