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Guidelines on Participation of Indian Banks on IIBX

Reserve Bank of India (RBI) has updated the guidelines on participation of Indian banks on India International Bullion Exchange IFSC Limited (IIBX).

What is International Financial Services Centre (IFSC)?

  • In India, an International Financial Services Centre (IFSC) is approved by the Government of India under the Special Economic Zones Act, 2005. 
  • IFSC unit is treated as a non-resident under the Foreign Exchange Management regulations.
  • Government of India has notified Gujarat International Finance Tech-City (GIFT City) as India’s first IFSC.
  • International Financial Services Centres Authority (IFSCA), established on April 27, 2020, is a unified authority for the development and regulation of financial products, financial services and financial institutions in IFSC in India. 
  • Prior to the establishment of IFSCA, the domestic financial regulators, namely, Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), Pension Fund Regulatory and Development Authority (PFRDA) and Insurance Regulatory and Development Authority (IRDAI) regulated the business in IFSC.

What is India International Bullion Exchange IFSC Limited (IIBX)?

  • India International Bullion Exchange IFSC Limited (IIBX) was launched on July 29, 2022. 
  • IIBX is promoted by National Stock Exchange of India Limited (NSE), India International Exchange Limited (INDIA INX) [subsidiary of Bombay Stock Exchange (BSE)], National Securities Depository Limited (NSDL), Central Depository Services Limited (CDSL) and Multi Commodity Exchange (MCX). 
  • IIBX is established at GIFT IFSC.
  • IIBX is regulated by IFSCA.
  • IIBX provides a gateway to import bullion into India and provide bullion exchange ecosystem to promote bullion trading, investment in bullion financial products and vaulting facilities in IFSCs.

What are the membership categories on IIBX?

  • Trading Member (TM) – This category of membership entitles a member to execute trades on his own account as well as on account of his clients but, clearing and settlement of trades executed through the Trading Member would have to be done through a Clearing Member.
  • Trading and Self Clearing Member (TSM) – This category of membership entitles a member to execute trades and to clear and settle the trades executed on his own account as well as on account of his clients.
  • Trading and Clearing Member (TCM) – This category of membership entitles a member to execute trades on his own account as well as on account of his clients and to clear and settle trades executed by themselves as well as by other trading members who choose to use clearing services of the member. 
  • Professional Clearing Member (PCM) – A member only clears and settles trades of trading members of the Exchange who choose to clear and settle their trades through the Member.

What is Special Category Client (SCC)?

Special Category Client (SCC) is a Limited Purpose Trading Member (LPTM ).

What roles can be taken by Indian banks on IIBX?

Category of banks Role on IIBX
Branches of Indian banks operating in GIFT-IFSC Professional Clearing Member (PCM)
Branch / subsidiary / joint venture of an Indian bank in GIFT-IFSC Trading Member (TM) / Trading and Clearing Member (TCM)
Indian banks authorized to import gold / silver Special Category Client (SCC)

What are the conditions for operating as PCM of IIBX?

  • The bank shall adhere to RBI guidelines on capital requirements for their exposures arising from its branch in GIFT-IFSC functioning as PCM on IIBX. The bank shall comply with the regulatory capital requirement of the host or home regulator, whichever is more stringent.
  • The bank shall adhere to RBI guidelines on management of liquidity risk (including those arising from its functioning as a PCM of IIBX).
  • The bank shall adhere to RBI guidelines on large exposure framework, including all exposures taken by its branch in GIFT-IFSC.
  • The bank's branch in GIFT-IFSC shall put in place an effective risk management framework including the prudential limits in respect of each of its trading clients. The risk control measures shall be in compliance with the guidelines / directions issued by the host or home regulator, whichever is more stringent.
  • The branch of the bank in GIFT-IFSC may, as a PCM of IIBX, clear and settle trades executed by its clients as trading members of the exchanges subject to the condition that the total exposure which the branch would take on its clients should be determined in relation to the Tier 1 capital of the bank as well as the capital of its branch in GIFT-IFSC and shall be monitored on an ongoing basis. However, the bank shall ensure that its branch in GIFT-IFSC, in its role as a PCM, does not undertake any transaction / activity on IIBX other than what is required as a PCM.
  • The bank shall ensure strict compliance with various margin requirements as may be prescribed by its Board.

What are the conditions for operating as TM / TCM of IIBX?

  • TM / TCM shall execute trades only on behalf of clients (without proprietary trading).
  • The bank in its role as TM / TCM shall adhere to the terms and conditions as applicable for acting as PCM of IIBX.
  • The bank shall adhere to RBI's Master Circular – Loans and Advances – Statutory and Other Restrictions dated July 01, 2015 (as updated from time to time).

What are the conditions for operating as SCC of IIBX?

  • As per the extant Foreign Trade Policy, RBI grants annual import authorization to banks for import of gold / silver. Such banks, in addition to the consignment model in domestic tariff area, are allowed to operate as a SCC on IIBX for import of gold / silver.
  • SCC shall execute only buy trades on behalf of clients.
  • The bank shall adhere to RBI's Master Circular – Loans and Advances – Statutory and Other Restrictions dated July 01, 2015 (as updated from time to time).
  • SCCs will appoint one of the IFSC Banking Units (IBUs) to act as clearing member on their behalf.

What are the guidelines on risk management?

  • All client trades placed on the exchange shall be against 110% advance pay-in of funds (buy order) of the expected value of bullion (quantity & quality specification) intended to be purchased and securities (sell order) in the account of the bank, as is applicable.
  • With reference to the Net Open Overnight Position Limit (NOOPL) for a bank as prescribed in Master Direction - Risk Management and Inter-Bank Dealings dated July 05, 2016 (as updated from time to time), the Board may determine a global sub-limit for net overnight open position in gold / silver, which shall not exceed one tonne of gold equivalent.

To whom are the instructions applicable?

The instructions are applicable to domestic scheduled commercial banks (including foreign banks operating through a Wholly Owned Subsidiary incorporated in India), which are authorised to deal in foreign exchange and have a branch in GIFT-IFSC.


References

GIFT SEZ. (n.d.). 'International Financial Services Centre (IFSC)'. Retrieved from https://www.giftsez.com/documents/PPT-Banking-Opportunities-in-IFSC-May2021.pdf

India International Bullion Exchange IFSC Limited. (n.d.). 'About Us'. Retrieved from https://www.iibx.co.in/static/about.aspx

India International Bullion Exchange IFSC Limited. (n.d.). 'Membership Categories'. Retrieved from https://www.iibx.co.in/static/membership_categ.aspx

International Financial Services Centres Authority. (n.d.). 'About IFSCA'. Retrieved from https://ifsca.gov.in/Pages/Contents/AboutIFSCA

Reserve Bank of India. (2022, June 07). 'Branches of Indian Banks operating in GIFT-IFSC – acting as Professional Clearing Member (PCM) of India International Bullion Exchange IFSC Limited (IIBX)'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12330&Mode=0

Reserve Bank of India. (2024, February 09). 'Participation of Indian Banks on India International Bullion Exchange IFSC Limited (IIBX)'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12606&Mode=0


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