Starting today, you can invest in popular US stocks, namely Google’s parent company Alphabet, Amazon, Microsoft, Tesla, Meta Platforms, Apple, Netflix and Walmart. National Stock Exchange’s (NSE) international exchange, NSE International Financial Service Centre (IFSC), has received approval from the International Financial Services Authority (IFSCA) to allow trading in select US-based stocks. A total of 50 stocks are permitted to be traded here, of which eight stocks will be available to trade from today.
“NSE IFSC was incorporated on November 29, 2016, by the Registrar of Companies, Gujarat, and is a fully-owned subsidiary of NSE, which had received approval from the Securities and Exchange Board of India (Sebi) to establish an international exchange in Gujarat International Finance Tech City (GIFT) - International Financial Service Centre (IFSC), Gandhinagar,” says Hemang Jani, head, equity strategy, broking and distribution, Motilal Oswal Financial Services Ltd.
Here is a step-by-step guide on how the process works for resident Indians:
The official trading hours in the New York Stock Exchange (NYSE) and the National Association of Securities Dealers Automated Quotations (NASDAQ) are 9.30 am to 4 pm (Eastern Standard Time). Since New York is in GMT -5 time zone and India is in GMT +5.30 time zone, the trading of these US stocks will be conducted over two days. The trading will start from 8 pm and will extend to 2.30 pm the next day on NSE IFSC.
Section 5 of the Foreign Exchange And Management Act, 1999, says that any person resident in India is free to buy and sell foreign exchange for any current account transaction except those specifically prohibited. An RBI circular, dated February 16, 2021, says that Authorised Dealer-Category 1 banks may allow Indian resident individuals to remit money for investments under LRS to IFSCs in India, subject to certain conditions.
The current limit for availing LRS under the automatic route in the case of individuals is $2,50,000 a year. But the LRS scheme is not available for corporates, partnership firms, HUF, Trusts, etc.
“Indian retail investors will be able to transact on the NSE IFSC platform under LRS limits prescribed by RBI. Currently, the LRS framework of RBI permits resident individuals to remit up to $2,50,000 per financial year for any permitted current or capital account transaction,” says Jani.
NSE IFSC has implemented some customised changes so that Indian investors can conveniently buy these US shares. Here they are:
1. Fractional Quantity: For Indian investors’ convenience of buying these US shares, NSE IFSC has devised a system of buying them in fractional quantities too. For example, suppose Amazon is trading at $3,000 a share in New York, but you do not want to invest $3000 (around Rs 2,27,000) right now, you can buy, say, one-tenth of the share by paying $300 (Rs 22,700).
2. Spread: The difference between the buy and sell call for a share is called a spread. NSE IFSC has decided to keep this spread at $0.01. For example, there will be a buy call for Amazon at, say, $3000.01 and a sell call for Amazon at $3000.02.
3. Dynamic Price Band: To ensure a safe and risk-free trading experience, the price band has been intentionally kept at 10 per cent of the value of the security. This means that the maximum loss or gain an investor will suffer or enjoy in a single day is capped. For example, suppose Amazon is trading at $3000, you can’t place a buy or sell order beyond $3,300 or $2,700 that day, respectively.
4. No Short Selling: NSE IFSC has decided to disable short-selling mechanisms for retail investors in these US stocks. For example, on the BSE or NSE, you can sell shares even if you do not have them in your demat so that when the price falls you can cover the short sale and take home the profit. On NSE IFSC, retail investors will not be allowed to do that.
5. Intraday Allowed: Every transaction on the NSE IFSC will have to be backed by an adequate amount in monetary terms. Intraday trading is allowed but every sell transaction should be either backed by NSE IFSC receipts or should be a sell transaction against an open buy position created during the day.
“IFSC is mainly formed to provide access to foreign markets and capital. Various tax holidays are provided to businesses to set up offices in IFSC, to increase financial product offerings in a regulatory-friendly environment,” says Vijay Kuppa, co-founder, Orowealth, a wealth and investment management fintech startup.
According to an NSE IFSC circular, these 50 shares will be traded as ‘Unsponsored Depositary Receipts’. Depositary Receipts (DR) can be of two types—sponsored by the company and unsponsored. The DRs sponsored by the company will by default receive every corporate benefit like dividends and bonus shares, but the unsponsored DRs may or may not receive those. The unsponsored DRs to be traded on NSE IFSC will receive every corporate benefit that the company will give to its stockholders.
"In order to make US stocks accessible to Indians, market makers will buy shares in US and issue receipts against them which is known as NSE receipts. Trading of the NSE receipts can be done on the fully owned subsidiary of NSE India which has received approval from the market regulator IFSCA to establish its presence in GIFT city. The receipts will be released in a certain ratio. For e.g. one share of Amazon will be equivalent to 200 IFSC receipts, i.e. as of present day an investor can buy 1/200th of an Amazon stock amounting to $15.20, said Shlok Srivastav, CEO & CO- Founder, Appreciate, a wealth advisory platform.
The NSE IFSC depositary receipts will have a proportionate beneficial interest in the underlying US shares that will be dependent upon the exchange ratio of the depositary receipt and the share.
For example, 1 Tesla Inc share=100 NSEIFSC receipts, 1 Amazon Inc share=200 NSEIFSC Receipts and so on. So, technically, NSEIFSC is not actually a share but rather a share derivative product.
