How to invest in US stocks via this route
One can invest by buying unsponsored depository receipts (DRs) on US stocks. Market makers will buy US shares and issue these receipts, which will be known as NSEIFSC receipts, in ratios. For example, 100 NSE IFSC receipts will be equivalent to one Tesla share. Investors could buy or sell these NSE IFSC receipts on US stocks during trading hours.
How will it ease the process?
Earlier, investors could trade in US stocks indirectly through mutual funds or Exchange Traded Funds or via brokers registered in the US. Also there were some apps which used to provide these services. Opening up of a demat account directly with the NSE IFSC would ease this process. It would offer investors an option to trade in fractional quantity/value when compared to the underlying shares traded in US markets. Here, investors would hold the depository receipts in their own demat accounts opened in GIFT City and would also be entitled to receive corporate action benefits pertaining to the underlying stock.
Which US stocks can investors trade?
From Thursday, investors can invest in eight stocks, represented by NSE IFSC receipts. They are Amazon, Tesla, Alphabet, Meta Platforms, Microsoft, Netflix, Apple and Walmart. The exchange plans to extend the list to 50 stocks. The full list includes Adobe, Berkshire Hathaway, Mastercard, Visa, Chevron, Morgan Stanley, Paypal and JP Morgan, among others. For these and other remaining, the date of trading will be decided later.
What would be the trading hours?
Trading in NSE IFSC receipts will be opened at 8 pm and would close at 2.30 am the next day. Initially, all settlements will be done on a T+3 day rolling basis. The opening time will change and would become 7 pm when the US implements its Daylight Saving Time (DST) in Mid-March.
How will the price be determined?
The base price of NSE IFSC receipts today will be the price determined by dividing the previous day’s closing price of the underlying security (US stock price) on the US exchange with the published DR ratio for each NSE IFSC receipts.
In general, if NSE IFSC receipts would trade in the last half an hour, the base price will be the daily close price (calculated as weighted average price of last half an hour). But on days, when NSE IFSC receipts are not traded in the last half an hour, the base price for next day shall be determined by dividing the closing price of the underlying security (US stock price) on the US exchange with the published DR ratio for each NSE IFSC receipts
Will there be any price band?
There will be no fixed price band applicable for these receipts. However, in order to prevent erroneous order entry, the exchange will have a mechanism of dynamic price bands (commonly known as dummy filters or operating range) which prevents acceptance of orders for execution that are placed beyond the price limits set by the exchange.
In the event of a market trend in either direction, the dynamic price band shall be relaxed in the direction of the price movement during the day. For the NSE receipts on the US stock, the dynamic price band will be set at 10 per cent of base price.
What currency unit would be used?
NSE IFSC receipts on US stocks will be traded in dollar terms. A minimum price movement in NSE IFSC receipts in either direction shall be set as one cent or $0.01.
Will there be any limit to investing?
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 of RBI (permits the resident individuals to remit up to $2,50,000 per financial year for any permitted current or capital account transaction).
Can investors undertake derivative trades?
Trading in derivative products is not permitted. Remittance for margins or margin calls to overseas exchanges are not allowed under the LRS. Funds equivalent to the 100 per cent of transaction value, which includes trade value, transaction fee and brokerage will be available with the trading members before any trade is executed on their behalf.
Besides, any profits arising out of the sale transaction cannot be used for further purchases till the profits are credited to clients’ accounts.
How will the capital gains be taxed?
Proceeds will be taxed as foreign assets. Short-term capital gains will be taxed at the slab rate while long-term capital gains will be taxed at 20 per cent with indexation.
What all investors need to do?
Investors will have to open a demat account at the IFSC. At present, a total of 36 brokers are registered with the exchange. Once the demat account is made, one would be required to transfer funds from local bank account to NSE IFSC registered broker’s bank account. Once the fund reflects in the broker’s account, an investor would be ready to trade in NSE IFSC receipts.
Will there be trading holidays?
Most trading holidays for NSE IFSC receipts on US stocks will be as per US trading holidays. However, some Indian holidays have also been incorporated. In 2022, the next holidays are April 15 (Good Friday), May 30 (Memorial Day), June 20 (Juneteenth National Independence Day), July 4 (US Independence Day), August 15 (Indian Independence Day), September 5 (Labor Day), October 24 (Diwali), November 24 (Thanksgiving Day) and December 26 (Christmas).