Indian Investors Can Now Trade US Stocks Through NSE IFSC – The New Indian Express

Express press service

MUMBAI: Investing in US stocks by Indian residents has just come closer to home with NSE International Exchange (NSE IFSC), a subsidiary of NSE, offering the top 50 US stocks on its trading platform from 3 march to Gift City Gujarat, an international financial services hub, where banks, stock exchanges and financial services firms run their global operations.

For starters, eight stocks including Google, FB, Netflix, Apple are on offer starting March 3, and another 42 will be available this week on the platform, a senior NSE official said. The pathway for investing is through the RBI’s Liberalized Remittance Scheme (LRS) which allows resident Indians to transfer up to $250,000 per capita per annum for the purchase of property, shares, paintings, medical care, private trips, etc. among the uses specified, with a bar on derivatives trading.

So far, 15 public and private banks have set up IFSC banking units (IBUs). A resident wishing to invest can transfer money from her bank account to her broker’s account at the IBU. About 15 leading brokers have opened branches in Gift City and are members of NSE IFSC.

Unsponsored Receipts

The shares will be held in the form of IFSC certificates of deposit, as the exchange offers trading in fractional form to make it more attractive, such as an ADR or GDR of an Indian stock traded in New York or London. A broker, requesting anonymity, said the price for a receipt would be in the range of $5-15.

Netflix stock at around $360 will become 24 times cheaper at the high end of the receipt. Similarly, an Apple share would be 11 times cheaper. Receipts will be digitally stored in the IFSC Custodian and accessible through the Custodian Participants who are the Brokers through which the Client will be trading.

Creation of receipt

The receipt is created by the custodian appointed by the Exchange, HDFC Bank, which has an IBU. The international market maker, also appointed by the exchange, credits the shares to the foreign unit of HDFC Bank. The bank, in turn, issues the unsponsored receipts against the credited shares.

The market maker sells them low at NSE IFSC. It provides both buy and sell quotes and makes money from the bid-ask spread. The client’s broker at the IFSC buys and sells the receipts on his behalf. Thus, the market maker provides the necessary liquidity.

Brokerage & taxation

The brokerage of the operations that have just started should be competitive, without stamp duty or tax on securities transactions, as on national stock exchanges. The broker quoted earlier said the brokerage under the LRS route tends to be a fixed amount of $7-10 whether a client buys 1,000 or 10,000 shares – a so-called line order. Apart from that, there will be custody fees. Gains on the shares will be taxed depending on the holding period.

If the shares are held for less than two years, they will be treated as short-term capital gain, added to the resident’s income bracket and taxed. If the holding period is more than two years, a 20% long-term capital gains tax is charged, said Amol Joshi, founder of PlanRupee Investment Services.

What are the risks

Liquidity and the cost of price impact are the risks. Currently, brokers conduct proprietary trades in derivatives on Gift City exchanges, which LRS does not cover. With the custodian coming to hold the unsponsored receipts on behalf of the client, the custodian participants are in the process of engaging the clients.

If the participation is low, the bid-ask spread might not be too attractive and this could increase the cost of the transaction. “This opens up the opportunity for participants to open accounts with IFSC brokers and trade US stocks,” said Chirag M Shah, a securities lawyer at Mansukhlal Hiralal & Co and a market veteran. “They will need to assess whether this is a preferred route, as these are ‘unsponsored’ receipts and not actual underlying stocks.”

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