New Framework for Listing of Commercial Papers and Certificates of Deposit on the Recognised Stock Exchange in GIFT IFSC

The Article has been authored by Suman Kumar Jha (Founder & Managing Partner), Prince Shankhdhar (Partner), Visakha Raghuram (Associate) and Akshita Varshney

Introduction

Earlier this year, the International Financial Services Centres Authority (“IFSCA”) brought out the IFSCA (Listing) Regulations, 2024 (“Listing Regulations”) which came into effect on August 30, 2024, and contained the framework for listing of various kinds of securities and financial products on the stock exchanges in the Gift City International Financial Services Centres (IFSCs). However, the Listing Regulations had left room for the enactment of the regulatory framework for listing of Commercial Paper and Certificates of Deposit.

The recent circular dated October 17, 2024, issued by the IFSCA, specifies requirements to be met by issuers for listing of Commercial Paper (“CP”) and Certificates of Deposit (“CD”) on the Recognised Stock Exchanges (“RSE”) of GIFT IFSC (the “Circular”). The Circular provides a framework for the implementation of Regulation 80 and Regulation 81 of the IFSCA (Listing) Regulations, 2024 (“Listing Regulations”), which enables the listing of Commercial Paper and Certificates of Deposit respectively. It includes eligibility criteria, necessary documentation, the listing process, investor protection measures, and ongoing regulatory oversight.

COMMERCIAL PAPERS (“CPs”)

Eligible Criteria

An issuer meeting the eligibility criteria provided shall be eligible to list Commercial Papers (“CP”) on a recognized stock exchange in the IFSC. The general eligibility criteria provided in Chapter II of the IFSCA (Listing) Regulations 2024 (“Listing Regulations”), states that the issuer must be incorporated or set up in IFSC or in India or in a foreign jurisdiction in accordance with the relevant laws of its home jurisdiction. It must operate in accordance with its constitution and it must be eligible to issue securities in its home jurisdiction. Further, none of its promoters or controlling shareholders or directors must be debarred from accessing the capital market or a wilful defaulter or a fugitive economic offender.

Non-eligibility

Entities resident in India are not permitted to issue commercial papers under the “External Commercial Borrowing” framework specified by the Reserve Bank of India.

Dematerialisation & Currency

• The issuer shall ensure that the CPs listed on a recognised stock exchange in the IFSC are in demat form and held with a recognised depository in the IFSC or an international central securities depository.
• The issuer shall ensure that the CPs must be denominated in a specified foreign currency as permitted under Regulation 8 of the Listing Regulations. Regulation 8, outlines requirements related to financial performance, compliance with corporate governance norms, and other factors that ensure the credibility and reliability of the entities seeking listing.

Other Conditions for listing of CPs

• CPs shall be issued at a discount to face value;
• Issuance of a CP with options (Call/put) is not permitted;
• Issuance of a CP is not permitted to be underwritten or co-accepted;

Maturity Period & Eligible Investors of CPs

• The maturity of the CPs proposed to be listed on a recognized stock exchange in the IFSC must range from seven days up to the maximum period of one year.
• Issuers may issue CPs to both residents in India and residents outside India subject to compliance with the applicable provisions of the Foreign Exchange Management Act, 1999 and Rules and Regulations made thereunder.

Buyback of CPs

• Buyback must occur at the prevailing market price.
• Buyback offer must be extended to all investors in the CP issue, ensuring identical terms for everyone.
• Buyback offer cannot be made within 30 days from the date of issuance.
• Any CP bought back will be considered extinguished and no longer valid.

CERTIFICATES OF DEPOSITS (“CDs”)

Eligibility Criteria

An IFSC Banking Unit licensed by the Authority shall be eligible to list its CD on a recognised stock exchange in IFSC. The issuance of CD shall be in accordance with the IFSCA (Banking) Regulations, 2020 and the IFSCA Banking Handbook issued by the Authority.

Conditions

Issuer shall ensure that CDs listed on a recognised stock exchange in IFSC are in demat form and held with a recognised depository in IFSC or an international central securities depository.

PROCEDURE FOR LISTING OF CPs & CDs

Application Process

Issuers desirous of listing their CPs or CDs must submit a listing application along with a copy of the offer document or information memorandum to the recognised stock exchange along with the necessary documents and a regulatory fee of USD 1,000.

If the issuer decides to list CPs or CDs through a series of issuances, the information document is required to be filed along with every issue.

Disclosure Requirements

Issuers must provide adequate material information to investors, including financial statements, business structure, potential risks, etc.

Further, the issuer must make continuous disclosures of audited annual financial statements, material or price sensitive events, delay/default in timely fulfilment of payment obligations of debt instruments, any material event or development or action that may adversely affect fulfilment of its payment obligations in respect of the CPs or CDs, any revision in the credit rating of the CPs or CDs. Detailed specifications of initial and continuous disclosures may be referred from the Circular.

Analysis

This circular marks a significant milestone in expanding the scope of the IFSCA (Listing) Regulations, 2024 (“Listing Regulations”). The introduction of a regulatory framework for the listing of CPs and CDs enhances GIFT IFSC’s appeal as a global financial hub, encouraging international investments in debt instruments. By facilitating the listing of CPs and CDs, GIFT IFSC enables issuers to access a diverse, international pool of capital, offering greater liquidity. This framework provides companies and financial institutions with an alternative to domestic exchanges, where transactions are primarily settled in INR. The option of multiple foreign currencies in the IFSC gives issuers and investors more flexibility.

The circular imposes strict compliance measures on issuers, mandating the disclosure of essential financial and operational information to investors. This ensures transparency and bolsters investor confidence. Moreover, continuous disclosure requirements, such as reporting delays in payments or any material developments, contribute to a well-regulated and transparent marketplace.

The listing framework promotes IFSC as a gateway for companies and financial institutions to raise short-term funds on a global scale, further strengthening the centre’s reputation. The eligibility criteria, which align with international standards, add credibility and provide a level playing field for issuers incorporated both within and outside India.

In conclusion, the regulatory clarity and incentives provided by the recent circular not only make GIFT IFSC an attractive destination for listing CPs and CDs, but also align with its broader mission of becoming a global financial hub. The innovative framework introduced by IFSCA opens new avenues for both issuers and investors, helping position GIFT IFSC as a preferred marketplace for international financial products.

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