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India’s domestic investors being allowed to trade in top US stocks

  • Category
    Economy
  • Published
    14th Mar, 2022

Context

Indian investors will be able to trade in the stocks of 50 leading US companies through the NSE International Exchange, a subsidiary of NSE.

  • Trading in US stocks will be facilitated through the NSE IFSC platform in GIFT City, Ahmedabad.

The NSE IFSC US stocks are unsponsored depository receipts issued by the NSE IFSC receipts custodian, namely HDFC Bank IFSC Banking Unit. 

About

What does this mean?

  • This means that the domestic investors can purchase US stocks sitting in India through NSE IFSC.
  • Right now, the NSE IFSC has announced the trading format of eight US stocks, details about the remaining 42 US stocks will be announced later.
  • However, the offering will be in the form of unsponsored depository receipts. For example, one share of Tesla will be equivalent to 100 NSE IFSC receipts.
  • The International Financial Services Authority (IFSCA) has already given the approval for the plan.

How will transactions to buy US stocks take place?

  • Entire trading, clearing, settlement and holding of US Stocks will be under the regulatory structure of IFSC Authority.
  • This initiative is a first-of-its-kind at IFSC where Indian retail investors will be able to transact on the NSE IFSC platform under the Liberalized Remittance Scheme (LRS) limits prescribed by the Reserve Bank of India (RBI).
  • Under the LRS framework, the RBI permits the resident individuals to remit up to $2,50,000 per financial year for any permitted current or capital account transaction.
  • Investors will be provided with an option to trade in fractional quantity or value when compared to the underlying shares traded in US markets.
  • This trading framework will make US stocks affordable to Indian retail investors.
  • NSE IFSC Clearing Corporation Limited (NICCL) will offer its robust risk management framework, facilitate clearing and settlement of all trades in depository receipts and provide settlement guarantee in respect to all trades executed on the NSE IFSC platform. Furthermore, all the trades will be covered under the investor protection framework at NSE IFSC.
  • Indian investors now mostly invest in US stocks through the mutual fund schemes floated by domestic asset management companies (AMCs). However, these AMCs invest in fund of funds (FoF) floated by US mutual funds.

How will this benefit investors in India?

  • The business model offered by NSE IFSC will not only provide an additional investment opportunity to the Indian investors but also make the entire process of investment easy and keep it at a low cost.
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