CS Professional · Strategic Management and Corporate Finance

An Overview on Listing and Issuance of Securities in International Financial Services Centre: formula sheet

Full chapter guide

Key formulas

Definition of IFSC: IFSC = centre set up under section 18 of the SEZ Act, 2005 (before or after the IFSCA Act, 2019); Section 3(1)(g) of the IFSCA Act. Quote the SEZ Act link in every definition.
Financial product (section 3(1)(d)): Securities + contracts of insurance + deposits + credit arrangements + foreign currency contracts (other than immediately settled currency exchange) + any product notified by the Central Government; Learn the six heads in this order.
Financial institution (section 3(1)(c)): Unit set up in an IFSC + rendering financial services in respect of any financial product; Both conditions are needed.
Functions of the Authority (section 12): Develop and regulate financial products, services and institutions in IFSCs; Includes regulating those already permitted by any regulator before commencement, those notified by the Central Government, and recommending further products to it.
Currency of transactions (section 20): Every financial services transaction in an IFSC is in the foreign currency specified by regulations, in consultation with the Central Government; Not in rupees by default.
Power to modify other laws (section 31): Central Government notification: other Central Act provisions either do not apply, or apply with exceptions, modifications and adaptations; Draft is laid before Parliament for 30 days in total, in one or more sessions.
Powers of other regulators (section 13): Powers of regulators in the First Schedule are exercised by the Authority in the IFSC, for regulation of financial products, services and institutions; Penalties are collected in foreign currency equivalent and credited to the Consolidated Fund of India in rupees.
Establishment (Section 4): Central Government notification → Authority; body corporate, perpetual succession, common seal; It can contract, hold property and sue or be sued. Offices elsewhere in India or abroad need prior Central Government approval.
Duty of the Authority (Section 12(1)): Develop + regulate financial products, services and institutions in IFSCs; Both words matter: the duty is development as well as regulation.
Section 12(2) functions: (a) already permitted items; (b) items notified; (c) recommend new items; (d) other prescribed functions; The list is inclusive, not exhaustive, because it is 'without prejudice to the generality' of 12(1).
Transfer of powers (Section 13(1)): Powers of the appropriate regulator (First Schedule, column 2) under its Act (column 3) → exercised by the Authority in the IFSC; Only for regulation of financial products, services or institutions, and only within IFSCs.
Procedure provisions (Section 13(4)): Filing, inspection, investigation, prosecution, settlement, compounding, adjudication, appeals, fees and penalties apply mutatis mutandis; The procedures of the parent Acts are borrowed, with necessary changes.
Penalties (Section 13(5) and (6)): Collected in the foreign currency equivalent at the RBI rate on the date of the order; credited to the Consolidated Fund of India in rupees; Do not say the penalty goes to the Authority's own Fund.
Authority Fund (Section 15): Credits: grants, fees and charges, and sums the Central Government decides; applied to salaries and other expenses; The Fund is the International Financial Services Centres Authority Fund.
Power to modify (Section 31): Central Government notification: other Central Act provisions do not apply, or apply with exceptions, modifications and adaptations, in IFSCs; The draft is laid before Parliament for 30 days in total. Rule-making provisions cannot be modified this way.
Power under Section 31(1): Central Government + notification → (a) non-application, or (b) application with exceptions, modifications and adaptations; Covers other Central Acts, their rules, regulations, notifications, orders and directions, except provisions relating to making of rules or regulations.
Scope of effect: Only financial products, financial services or financial institutions, as the case may be, in an IFSC; The notification does not change the law outside the IFSC.
Parliamentary scrutiny, Section 31(2): Draft laid before each House for 30 days (one session or successive sessions) → no issue, or issue in modified form, if both Houses agree; Both Houses must agree. One House alone cannot stop or change the notification.
Who exercises it: Central Government, not IFSCA; IFSCA's regulation-making power is Section 28. Section 31 is a different power.
Financial product: Securities, insurance contracts, deposits, credit arrangements, foreign currency contracts (other than immediate-settlement currency exchange) and notified products; Section 3(1)(d). Listed equity and debt are securities, so they fall in this definition.
Transfer of regulatory powers: Powers of the appropriate regulator under the First Schedule Acts, in the IFSC → exercised by IFSCA; Section 13(1). It applies in so far as it relates to regulating financial products, services or institutions.
Procedure and penalty provisions: Procedure, inspection, adjudication and penalty provisions of the parent Acts apply mutatis mutandis; Section 13(4). Covers filing, inspection, investigation, compounding, appeals and fines.
Penalty currency: Penalty collected in foreign currency equivalent; sums credited to Consolidated Fund of India in rupees; Section 13(5) and (6). The exchange rate is the RBI-notified rate on the date of the order.
Power to modify enactments: Central Government notification → Act does not apply, or applies with modifications, in an IFSC; Section 31(1). A draft is laid before Parliament for thirty days under section 31(2).
Regulations: IFSCA may make regulations consistent with the Act and rules; Section 28(1). Section 28(2)(f) covers the foreign currency for IFSC transactions.
Financial product (s 3(1)(d)): Securities + contracts of insurance + deposits + credit arrangements + foreign currency contracts (not spot exchange) + notified products; Bonds and shares fall under 'securities', so their issue is regulated by IFSCA inside an IFSC.
Financial service (s 3(1)(e)): Includes buying, selling or subscribing to a financial product, underwriting its issuance, and advising on it; Underwriting an issue and arranging it are financial services.
Regulator's powers (s 13(1)): Powers of appropriate regulator under its Act → exercised by IFSCA in the IFSC; Applies to regulation of financial products, services or institutions.
Procedure carry-over (s 13(4)): Filing, inspection, investigation, adjudication, penalties of the parent Act apply mutatis mutandis; Same procedure as the parent Act, applied to IFSC activity.
Penalty currency (s 13(5)-(6)): Collected in foreign currency equivalent at RBI rate on the date of order; credited to Consolidated Fund of India in rupees; Do not say penalties are collected in rupees.
Modification of other laws (s 31): Central Government notification → other Central Act does not apply, or applies with modifications, in the IFSC; Draft is laid before Parliament for 30 days.
Regulations (s 28 and s 29): IFSCA makes regulations by notification; laid before each House for 30 days; Issue and listing rules are made through this power.

Quick revision

An IFSC is set up under section 18 of the Special Economic Zones Act, 2005.
The Authority is a body corporate with perpetual succession and a common seal, set up under section 4.
Section 12 makes it the Authority's duty to develop and regulate financial products, services and institutions in IFSCs.
Financial products include securities, contracts of insurance, deposits, credit arrangements, foreign currency contracts other than contracts to exchange one currency for another that are to be settled immediately, and any other product or instrument notified by the Central Government.
A financial institution is a unit in an IFSC engaged in rendering financial services for a financial product.
Under section 13, powers exercisable by the appropriate regulators under the Acts in the First Schedule are exercised by the Authority in IFSCs, as far as regulation of financial products, services and institutions is concerned.
Penalties and fines are collected in the foreign currency equivalent, at the RBI-notified rate on the date of the order.
Sums realised as penalties or fines are credited to the Consolidated Fund of India in rupees.
Section 20 requires financial services transactions in an IFSC to be in the foreign currency specified by regulations.
Section 31 lets the Central Government, by notification, direct that other Central Acts do not apply, or apply with modifications, to financial products, services or institutions in an IFSC.
A draft section 31 notification is laid before each House for a total of thirty days, in one session or successive sessions. If both Houses agree to disapprove or modify it, it is not issued, or is issued only as modified.
The Authority makes regulations under section 28.

Common mistakes

Saying an IFSC is set up under the IFSCA Act, 2019. Fix: The centre is set up under section 18 of the SEZ Act, 2005. The IFSCA Act regulates it.
Listing only securities as financial products. Fix: Remember all six heads: securities, insurance, deposits, credit arrangements, foreign currency contracts and notified products.
Saying the IFSCA regulates financial activity across all of India. Fix: Always add 'in the International Financial Services Centres'. Section 13(1) transfers powers only for IFSCs.
Treating section 12(2) as a closed list of functions. Fix: Remember the words 'without prejudice to the generality' and 'shall include'. The list is illustrative.
Saying IFSCA issues Section 31 notifications. Fix: Remember Section 31 says the Central Government. IFSCA makes regulations under Section 28.
Saying the exemption applies to all companies in India. Fix: Write that it applies only to financial products, services or institutions in an IFSC.
Saying SEBI approves listing on an IFSC exchange. Fix: Write that under section 13(1) IFSCA exercises the relevant powers in the IFSC.
Quoting eligibility figures from memory without being sure. Fix: State conditions only as you know them from the study material. Otherwise describe the principle and apply it to the facts.
Saying SEBI regulates issues in the IFSC. Fix: Write that IFSCA exercises the relevant powers in the IFSC under section 13.
Stating penalties are collected in rupees. Fix: Penalties are collected in the foreign currency equivalent at the RBI rate on the order date; the sum is credited to the Consolidated Fund of India in rupees.

Exam tips

Begin every answer with the section 3(1)(g) definition and the SEZ Act link. It earns easy marks.
In case questions, match each activity to a clause of section 3(1)(e) by number.
Keep the benefits section general and logical rather than citing figures you cannot verify.
Mention section 31 whenever the question hints at the application of other laws in the IFSC.
Use bullet lists for products and services so the examiner can tick them quickly.
Quote the section number only when sure. The ones you can rely on here are 3, 4, 12, 13, 15, 28 and 31.
In case questions, always begin with the IFSC test: set up under section 18 of the SEZ Act, 2005.
Learn the six limbs of financial product and group the financial service limbs into themes: dealing, deposits, custody, insurance, asset management, payments, advice.