IFSC (Banking) Regulation, 2020- Directions for implementation – Criteria for BUs to become trading/clearing members of IFSCA recognized stock exchanges- clarification

Last updated: 19 May 2021

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This notification clarifies the criteria for Banking Units (BUs) to become trading or clearing members of stock exchanges recognised by the International Financial Services Centres Authority (IFSCA). The updated rules, effective from May 17, 2021, adopt specific parameters from the Reserve Bank of India's (RBI) Master Circular. BUs must ensure their parent bank meets minimum capital requirements set by their home regulator to become a trading member in interest rate and currency derivatives, or a clearing member in any derivatives segment. However, BUs not meeting this capital condition can still participate in the currency derivatives segment as clients.

International Financial Services Centres Authority

F.No.110/IFSCA/Banking Regulation/2021-22/3

May 17 ,2021

To all the Banking Units (BUs)

Dear Sir/ Madam,

Subject: IFSC (Banking) Regulation, 2020- Directions for implementation – Criteria for BUs to become trading/clearing members of IFSCA recognized stock exchanges- clarification

Banking units (BUs) may please refer to the Annex to the circular on “IFSC (Banking) Regulation, 2020 – Directions for implementation”, dated December 4, 2020¹ issued by the Authority. The said circular, inter alia, adopted Reserve Bank of India (Financial Services Provided by Banks) Directions,2016, dated May 26, 2016 (as amended from time to time), to be applicable to the BUs.

2. Para 21 (a) of the adopted Master Circular, prescribes the parameters/criteria to be met by BUs to become trading/clearing member of the IFSC Stock exchanges.

3. It has been decided that, from the date of this circular, the aforesaid para of RBI’s master circular shall be adopted for BUs in the following manner :

“21. Membership of IFSCA approved Stock Exchanges

a) No Banking Unit (BU) shall become a trading member in interest rate and currency derivatives segment and/or clearing member in any derivatives segment of IFSCA recognised stock exchanges unless its parent bank satisfies the minimum prescribed capital requirement (including Capital Conservation Buffer) specified by the home regulator of the parent bank.

Provided that a BU not meeting the aforesaid condition may participate in the currency derivatives segment as a client.

A BU that is a trading/clearing member shall keep its and its clients’ position distinct from one another.”

4. Accordingly,BUs can now function as a trading member for trading in interest rate or currency derivatives and/or as a clearing member (including professional clearing member) for clearing and settlements in any derivative segment² subject to satisfaction of the minimum prescribed capital requirement condition referred to in para 3 above.

5. BUs are directed to ensure compliance with the provisions of this circular.

Yours faithfully

(Raghuram Kumar )
General Manager
rag.kumar@ifsca.gov.in

Note:

1. See F.No.110/IFSCA/Banking Regulation/2020-21/1

2. See Gazette notification no. CG-MH-E-12052021-226980, dated 12.5.2021

FAQ :

The notification clarifies the criteria for Banking Units (BUs) to become trading or clearing members of IFSCA-recognised stock exchanges under the IFSC (Banking) Regulation, 2020.

BUs must ensure their parent bank satisfies the minimum prescribed capital requirement (including Capital Conservation Buffer) specified by the home regulator of the parent bank.

Yes, a BU not meeting the capital requirement can still participate in the currency derivatives segment as a client.

BUs can become trading members in the interest rate and currency derivatives segment, and clearing members in any derivatives segment, subject to meeting the capital criteria.

The updated criteria came into effect from the date of this circular, which is May 17, 2021.