Investors will be able to trade in eight prominent US stocks as of now, which will gradually go up to 50. Currently, Indian investors buy US stocks through designated online brokers who have permission 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 stocks will be in the form of Unsponsored Depository Receipts.
Here is everything you need to know:
What is this exchange?
NSE IFSC (NSE International Exchange) incorporated on November 29, 2016, is a fully-owned subsidiary of National Stock Exchange of India Limited (NSE). Stock exchanges operating in the GIFT City are permitted to offer trading in securities in any currency other than the Indian rupee. Accordingly, NSE IFSC which launched trading on June 5th, 2017, offers USD denominated trading in various products.
NSE IFSC offers trading in various products including index derivatives, stock derivatives, currency derivatives, commodity derivatives and debt securities.
What is an NSE IFSC Receipt?
It is a negotiable financial instrument in the nature of an unsponsored ‘depository receipt’, which means it is a derivative product and investors can directly trade in these 8 stocks without having to do so through registered online brokers. Investors are provided an option to trade in fractional quantity when compared to the underlying securities traded in the US markets. Just like you purchase shares domestically, you can now buy shares in the US and issue receipts against them, which will be known as NSEIFSC Receipts.
Which stocks can one trade in?
NSE IFSC has so far received approval to trade receipts of 50 US-based stocks. However, only 8 will be available to be traded from Thursday onwards. These include the following: Amazon, Tesla, Alphabet, Meta Platforms, Microsoft, Netflix, Apple and Walmart.
This will be extended in a phased manner to include others like Paypal, McDonalds, Johnson &Johnson, Nike Adobe, Berkshire Hathaway, Mastercard, Visa, Chevron, Morgan Stanley and JP Morgan. The date of trading is yet to be decided.
Investors will be provided with an option to trade in fractional quantity/value when compared to the underlying shares traded in US markets. “The proposed framework will make US stocks affordable to Indian retail investors,” according to NSE-IFSC.
Who can invest?
Person resident outside India, Non-resident Indians and Individual resident in India who is eligible under FEMA to invest funds offshore, to the extent allowed in the Liberalized Remittance Scheme of Reserve Bank of India. However, US and Canadian residents are not allowed to invest through this instrument.
How can one invest?
Investors residing in India will have to open a demat account at the IFSC. Investors will be able to hold the depository receipts in their own demat accounts opened in GIFT City and will be entitled to receive corporate action benefits pertaining to the underlying stock. The investment can be made under the Liberalised Remittance Scheme (LRS) limits prescribed by the Reserve Bank of India (RBI), which means it has to be capped at $250,000 per year ( Rs 1.9 cr).
How does the ratio work? If I buy one receipt of a stock, will I own one share in that company?
Nope. An NSE IFSC Receipt Holder will have a proportionate beneficial interest in the Underlying Shares, which depends on the ratio in which the NSE IFSC Receipts are issued vis-à-vis one Underlying Share of the relevant Underlying Company. Such ratio may be expressed as 1:N (example 1:100, 1:200 and so on) and is linked to the value of the Underlying Share. For example the ratio for Apple is 25, which means one share of Apple is equal to 25 NSE IFSC receipts. For Amazon the ratio is 200, which means one share of Amazon is equivalent to 200 NSE IFSC receipts.
You can view the entire list here
What is the tax liability on this?
The receipts will be considered foreign assets for filing income tax returns. Short-term capital gains will be taxed at the slab rate while long-term capital gains will be at 20 per cent with indexation.
What currency will we trade in?
The trading currency will be US Dollars and the minimum ticket size is $0.01.
The trading will start at 8:30 PM on day one to 2:30 PM the next day. Trading in US stock receipts will be conducted over two calendar days beginning 20:00 pm on day one and extending up to 2.30 pm the next day. Such a trading cycle will be considered one single business day.
What about the price band?
There will be no fixed price band applicable but the exchange will have a mechanism of dynamic price bands, which prevent acceptance of orders for execution that are placed beyond the price limits set by the exchange. In the event of a market trend in either direction, the dynamic price band shall be relaxed in the direction of the price movement during the day. For the NSE Receipts on US Stock, the dynamic price band will be set at 10% of base price
What is the Process for an Indian resident to trade in NSE IFSC Receipts?
An Indian resident who wishes to trade in NSE IFSC Receipts on NSE IFSC platform must complete the below formalities before he can commence trading:
• Register with an IFSCA registered Trading Member and complete the KYC requirements
• Complete documentation for Liberalized Remittance Scheme (LRS) with the bank
• Transfer US Dollars from his/her bank account to the Trading Member’s bank account in GIFT IBU
• Confirm that Broker has given credit to his account
• Start trading NSE IFSC Receipts on NSE IFSC platform.
Can a Trading Member avail the LRS?
LRS is not available to corporates, partnership firms, HUF, Trusts
Is Intra-Day trading allowed? Is short selling allowed?
Yes. Intra -day trading is allowed in NSE IFSC Receipts. However, in respect of Indian Retail Investors, intra -day trading is allowed, provided the investor:
• Will not be permitted to take any positions/ execute any trade which would exceed the overall LRS
limit of USD 2,50,000 per financial year.
• Each transaction is adequately backed by the entire transaction value.
• Sell transactions should be either backed by NSE IFSC Receipts or should be a sell transaction against
an open buy position created during the day.
Short selling of NSE IFSC Receipts by the Indian Retail investors will not be permitted
What is the Settlement cycle of NSE IFSC Receipts?
All NSE IFSC Receipts that are bought and sold on NSE IFSC platform shall be settled through NSE IFSC Clearing Corporation Limited (NICCL).
The settlement of funds and NSE IFSC RECEIPTS shall happen on T+3 day.
Which type of Bank account is required by the investor to remit funds / receive any payments?
There is no specific requirement for a Bank account to be held by the Investors. Investors can either open a Dollar account with any of the Banks operating from IFSC region or can use their domestic INR account to remit or receive any payments from the broker.
What are the Potential risks for an investor?
Investing in NSE IFSC Receipts carries risks. Some of the significant risks are as follows:
1. General price and volatility risk.
2. Risk of illiquidity.
3. Underlying Share risk.
4. Risk of Cancellation and Termination of the NSE IFSC Receipt.
5. Tax risks.
6. Other risks such as force majeure, changes in law, settlement, trading, etc.
Most trading holidays for NSEIFSC Receipts on US stocks will be as per US trading holidays. However, some Indian holidays have also been incorporated. In 2022, holidays are April 15 (Good Friday), May 30 (Memorial 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)