June 16, 2009

SEBI FII Regulations: Cayman Islands' CIMA set to be in SEBI's Ivy League

Recent Development

With the Cayman Islands Monetary Authority (“CIMA”) now being admitted as an ‘ordinary member’1 of IOSCO, the investment gateway for investing in the Indian capital markets has opened up for Cayman Islands-based CIMA registered funds and fund managers.

“IOSCO” stands for the International Organization of Securities Commissions. It is a body comprising of securities regulators from across the world and includes the Securities and Exchange Board of India (“SEBI”), which is registered with it as an ordinary member.

IOSCO has been primarily set up to achieve the following objectives, which it seeks to attain through its network of members2.

  • co-operation to promote high standards of regulation in order to maintain just, efficient and sound markets;
  • exchange of information on their respective experiences in order to promote the development of domestic markets;
  • unite their efforts to establish standards and an effective surveillance of international securities transactions;
  • provide mutual assistance to promote the integrity of the markets by a rigorous application of the standards and by effective enforcement against offenses.

Indian Regulatory Considerations

The SEBI (Foreign Institutional Investors) Regulations, 1995 (“FII Regulations”), require any applicant applying to SEBI for a registration as an FII under the FII Regulations to be regulated by an ‘appropriate foreign regulatory authority’. SEBI recognizes ‘ordinary member’s’ of IOSCO as appropriate foreign regulatory authorities.

Implications

The Cayman Islands is a major international financial center with over 9,000 registered funds. With a well-developed financial services sector, hedge funds with global investment strategies have set up their shop in the Cayman Islands. Also, due to its proximity to the United States, Cayman Islands has earned itself a name for being a preferred jurisdiction to U.S. investors.


Due to IOSCO not recognizing CIMA as an ‘ordinary member’, SEBI did not look favorably at applications made by CIMA registered funds and fund managers.  With CIMA now being admitted as an ‘ordinary member’ of IOSCO, funds and fund managers regulated by CIMA with interest in the capital markets in India may now consider getting themselves registered with the SEBI under the FII Regulations.

Considering that Cayman Islands does not have a tax treaty with India, we may see structures with Cayman Islands based fund’s registered as a FII with its wholly owned subsidiary, situated in a tax-favorable jurisdiction, registering as a proprietary sub-account. Alternatively, we may  also see Cayman Islands based fund manager’s registering as a FII and setting up a pooling vehicle in a tax-favorable jurisdiction, to be registered as a broad based sub-account.

_________________________

1 http://www.iosco.org/library/statements/pdf/statements-6.pdf

2 http://www.iosco.org/about/


 

 

Kishore Joshi & Vivek Mimani

You can direct your queries or comments to the authors

You are welcome to connect with us at interesting conferences, seminars and events (more...) 
  VIDEO
Nishith Desai on Vodafone v/s Tax Department
Vyapak Desai on Foreign Investment Policy
Nishchal Joshipura on Satyam Maytas deal
Vyapak Desai on FII, FDI norms
Kartik Ganapathy on Ranbaxy Daiichi deal
Nishith Desai on Vodafone Controversy
Siddharth Shah on New FDI Norms
Siddharth Shah on P Notes
ARTICLES & RESEARCH REPORTS
Raising debt the FCEB way, The Economic Times, Ruchir Sinha & Nishchal Joshipura, April 23, 2008
Taxation of Derivatives
Discovering Derivatives
eCommerce Taxation in India
Special Economic Zones
BPO Report
India: Structural Strategy
Inversion - The Basic Facts
Venture Capital at Crossroads
  SUBSCRIPTION

We update our clients by sending various hotlines. You can subscribe to one / more hotlines also. You can email us for registering yourself for any of the hotlines given below.
Corpsec Hotline
Tax Hotline
HR Hotline
iCe Hotline
Annual Budget
FII Hotline
Pharma Update
Infra Update
IP Update
Dispute Resolution Hotline


Unsubscribe
Feedback





Disclaimer: The contents of this hotline should not be construed as legal opinion. View detailed disclaimer.

This hotline provides general information existing at the time of preparation. The hotline is intended as a news update and Nishith Desai Associates neither assumes nor accepts any responsibility for any loss arising to any person acting or refraining from acting as a result of any material contained in this hotline. It is recommended that professional advice be taken based on the specific facts and circumstances. This hotline does not substitute the need to refer to the original pronouncements. We are not authorized to practice laws of other jurisdictions including US and Mauritius law and no reliance should be placed on any US law related comments or interpretations.

This is not a Spam mail. You have received this mail because you have either requested for it or someone must have suggested your name. Since India has no anti-spamming law, we refer to the US directive, which states that a mail cannot be considered Spam if it contains the sender's contact information, which this mail does. In case this mail doesn't concern you, please unsubscribe from mailing list.
NDA