Explained: The implication of domestic investors being allowed to trade in top US stocks

What does this imply?

This means domestic investors can purchase US stocks like Amazon, Alphabet, Tesla, Meta Platforms, Microsoft, Netflix, Apple and Walmart from Thursday onwards. While the NSE IFSC has announced the trading format of eight US stocks from March 3, details about the remaining 42 US stocks will be announced later, it said.

However, the offering will be in the form of unsponsored depository receipts. For example, one share of Tesla will be equivalent to 100 NSE IFSC receipts. One share of Amazon will be equivalent to 200 IFSC receipts and one share of Microsoft will be equal to 50 receipts.

The International Financial Services Authority (IFSCA) has already given the approval for the plan.

Is this an experimental intervention?

IFSCA has essentially facilitated this under the Regulatory Sandbox. “The entire trading, clearing, settlement and holding of US Stocks will be under the regulatory structure of IFSC Authority,” NSE IFSC said.

This initiative is a first-of-its-kind at IFSC where Indian retail investors will be able to transact on the NSE IFSC platform under the Liberalized Remittance Scheme (LRS) limits prescribed by the Reserve Bank of India (RBI).

Under the LRS framework, the RBI permits the resident individuals to remit up to $2,50,000 per financial year for any permitted current or capital account transaction.

The business model offered by NSE IFSC will not only provide an additional investment opportunity to the Indian investors but also make the entire process of investment easy and keep it at a low cost.

Investors will be provided with an option to trade in fractional quantity or value when compared to the underlying shares traded in US markets. The proposed trading framework will make US stocks affordable to Indian retail investors.

NSE IFSC Clearing Corporation Limited (NICCL) will offer its robust risk management framework, facilitate clearing and settlement of all trades in depository receipts and provide settlement guarantee in respect to all trades executed on the NSE IFSC platform. Furthermore, all the trades will be covered under the investor protection framework at NSE IFSC.

Indian investors now mostly invest in US stocks through the mutual fund schemes floated by domestic asset management companies (AMCs). However, these AMCs invest in fund of funds (FoF) floated by US mutual funds.

Newsletter | Click to get the day’s best explainers in your inbox