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

Published: 14th Mar, 2022

Context

Indian investors will be able to trade the equities of 50 prominent US firms on the NSE International Exchange, a subsidiary of the NSE.

  • Trading in US stocks will soon be made possible via the NSE IFSC platform at GIFT City, Ahmedabad.

The NSE IFSC US stocks are not sponsored depository receipts issued by the NSE IFSC receipts custodian, HDFC Bank's IFSC Banking Unit.

About

What does this mean?

  • This means that 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 come in the type of unsponsored depository receipts. For example, one Tesla share will be the same as 100 NSE IFSC receipts.
  • The International Financial Services Authority (IFSCA) has already approved the proposal.

How will transactions to buy US stocks take place?

  • The whole trading, clearing, settlement, and holding of US stocks will be regulated by the IFSC Authority.
  • This project is the first of its type at IFSC, allowing Indian retail investors to trade on the NSE IFSC platform within the Liberalized Remittance Scheme (LRS) restrictions set by the Reserve Bank of India (RBI).
  • Under the LRS framework, the RBI allows resident people to remit up to $2,50,000 each fiscal year for any eligible current or capital account payment.
  • Investors will be able to trade in fractional quantities or values relative to the underlying shares traded in US marketplaces.
  • This trading platform would make US equities cheaper for ordinary Indian investors.
  • NSE IFSC Clearing Corporation Limited (NICCL) will provide a solid risk management framework, allow the settlement and clearing of all trades in depository receipts, and give settlement guarantees for all trades completed on the NSE IFSC platform. Furthermore, all transactions will be protected by the investor protection mechanism at NSE IFSC.
  • Indian investors currently invest mostly in US equities through mutual fund schemes offered by domestic asset management firms (AMCs). However, these AMCs invest in a fund of funds (FoF) issued by US mutual funds.

How will this benefit investors in India?

  • The business model given by NSE IFSC would not only bring more investment opportunities to Indian investors, but it will also make the entire investing process simple and cost-effective.
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