Subject:                          [FII&C] FPI Investments in Government securities when the limit utilization is nearing 90%

Importance:                   High

From: custodianreports
Sent: 23/12/2014 5:26 PM
To: all_cust; ALL_DDP
Cc: S MADHUSUDHANAN; PRAVEEN KAMAT; KUMAR ROHIT
Importance: High

Dear Madam/Sir,

This has reference to the USD 25 billion (INR 124,432 cr) Government debt investment limit (G-Sec limit) available for investments by FPIs in Government securities. The limit is freely available to all FPIs till the utilization reaches 90% after which the auction mechanism gets initiated for allocation of the remaining limits.

In order to ensure that the G-Sec limit does not get overshot, it is proposed as follows:

a)      If the debt utilization is N% where N<90, then the FPI should exercise due care and ensure that no trade is executed/agreed which may potentially breach the 90% limit.

b)     If the debt utilization is N% where N<90, then the custodian shall ensure that the trades executed by any single FPI or multiple FPIs serviced by it are confirmed only to that extent which will result in the 90% limit not crossed. This implies a custodian shall not confirm G-sec trades more than (90-N) % of the total debt limits (i.e. INR 124,432 cr). In this regard, for the purpose of monitoring the debt limit, the custodians are advised to consider broker note OR trade settlement instructions received by them from their FPI clients or global custodian, on a First in First Out basis (FIFO) basis.

This shall come into effect immediately. You are advised to bring the contents of this communication to the notice of your FPI clients.

Regards,

FII&C Division