Capital Market Intermediaries: New Era of Regulation in IFSC | Consultation Paper

IFSCA Official has released a consultation paper to invite public and stakeholder feedback on the draft IFSCA (Capital Market Intermediaries) Regulations, 2024 (New CMI Regulations). These regulations aim to redefine the registration, regulation, and supervision of capital market intermediaries in IFSCs, ensuring investor protection and market integrity.

Background of Capital Market Intermediaries in IFSC

The capital market ecosystem in IFSC includes two primary entities:

1. Market Infrastructure Institutions (MIIs): Stock Exchanges, Clearing Corporations, and Depositories.

2. Capital Market Intermediaries (CMIs): Broker dealers, clearing members, custodians, investment advisers, investment bankers, debenture trustees, credit rating agencies, and distributors.

The regulatory framework for MIIs has been addressed under the IFSCA (Market Infrastructure Institutions) Regulations, 2021, which was recently amended in October 2024. Similarly, the CMI Regulations, 2021 outlined guidelines for intermediaries. However, evolving financial activities and stakeholder feedback necessitate an updated framework under the New CMI Regulations.

Current Status of Registered Entities

As of September 30, 2024, the number of entities registered with IFSCA under various intermediary categories is as follows:

Type of Entity: Number of Entities

• Broker Dealers: 82

• Clearing Members: 22

• Custodians: 5

• Depository Participants: 10

• Investment Advisers: 3

• Investment Bankers: 4

• Debenture Trustees: 4

• Distributors:10

• Credit Rating Agencies 1

Key Proposals in New CMI Regulations

1. Introduction of Research Entity:

A new category, Research Entity, is introduced to regulate activities such as publishing research reports and making securities recommendations.

2. Changes to Existing Categories:

• Distributors: Comprehensive guidelines for their registration, net worth, and responsibilities are proposed.

• ESG Ratings and Data Product Providers (ERDPP): Specific regulations for ESG ratings, appointment of officers, and compliance practices are included.

• Global Broker Dealers: New provisions allow broker dealers to register directly with the Authority for accessing global markets without requiring affiliation with an IFSC exchange.

Rationalized Net Worth Requirements

Stakeholder feedback has led to the rationalization of net worth requirements for intermediaries. Below is the revised structure:

Category: Net Worth Requirement

• Broker Dealer (Trading Member): As specified by stock exchange

• Broker Dealer (Global Access): USD 100,000

• Clearing Member: As specified by clearing corporation

• Credit Rating Agency: USD 500,000

• Debenture Trustee: USD 500,000

• Depository Participant: As specified by depository

• Distributor: USD 50,000

• ESG Ratings and Data Providers: USD 25,000

• Investment Adviser: USD 25,000

• Investment Banker: USD 100,000

• Research Entity: USD 25,000

Objective and Expected Impact

The New CMI Regulations aim to:

• Enhance investor protection.

• Maintain market integrity.

• Streamline business operations in the IFSC through simplified and rationalized guidelines.

• Introduce innovative services, including ESG ratings and global market access for intermediaries.

Public Participation and Feedback

More detailed draft regulations: International Financial Services Centres Authority

Stakeholders are encouraged to submit feedback in excel or word in below Format on the draft regulations by December 12, 2024, via email to consultation-cfd@ifsca.gov.in with a copy to Shri Arjun Prasad, General Manager at arjun.pd@ifsca.gov.in with subject line “Comments on draft IFSCA (Capital Market Intermediaries) Regulations, 2024” latest by December 12, 2024. This collaborative effort ensures the regulations align with global best practices while addressing local needs.