SEBI’s SBU Route: Simplifying Gift-IFSC Entry

Posted On - 22 May, 2025 • By - Vatsal Gaur

Introduction

On May 2, 2025, SEBI released a circular relaxing the regulatory route for SEBI-registered stock brokers to become operational in the GIFT International Financial Services Centre (GIFT-IFSC).[1] Through this circular, brokers have been permitted to conduct securities market-related activities using a Separate Business Unit (SBU) within the same legal entity without seeking prior approval from SEBI. This is a landmark change from the previous requirement of establishing a subsidiary or joint venture with the approval of SEBI, thus facilitating ease of doing business, while making regulatory supervision of such SBUs the sole responsibility of the IFSCA.

Understanding the Circular

Elimination of SEBI Approval Requirement

  • SEBI-registered stock brokers can now engage in securities market-related activities within GIFT-IFSC without specific approval from SEBI.
  • This is a departure from the previous requirement of securing a no-objection or approval from SEBI for such engagements.

Permissibility of Separate Business Unit (SBU)

  • These activities can be performed by stock brokers through a Separate Business Unit (SBU) within the same legal entity.
  • A branch fulfilling the required conditions can also be dealt with as an SBU.
  • This provides business flexibility to brokers in organizing their international finance business.

Subsidiary Model Still Allowed

  • The current practice of carrying out business through a subsidiary in GIFT-IFSC is still allowed.
  • Stock brokers are given freedom to select between carrying out business through a subsidiary, a joint venture, or an SBU depending on their business plan.
  • Regulatory Oversight and Framework
  • All activities of the SBU in relation to the securities market conducted at GIFT-IFSC shall be subject to the jurisdiction of the respective regulatory authority, i.e., the International Financial Services Centres Authority (IFSCA).
  • Eligibility, policy framework, investor grievances, inspections, enforcement, and claims for SBUs will be regulated as per the regulatory framework of the IFSCA.

Prescribed Safeguards and Ring-Fencing Requirements

For ensuring demarcation and risk containment with clarity, SEBI has prescribed the following important safeguards:

  • Segregation of Activities: Stock brokers should see to it that the activities of the SBU in GIFT-IFSC are ring-fenced and segregated from their Indian securities market businesses. There has to be an arm’s-length relationship between the two.
  • Exclusive Activity Scope: The SBU will have to be solely dealing with securities market-related business as permitted by IFSCA. The activities allowed shall be as prescribed by the regulatory authority.
  • Independent Accounting: SBU is required to have separate accounts for the broker, with business being conducted on an arm’s-length basis.
  • Demarcation of Net Worth: The net worth of the SBU will be separated from that of the Indian market business of the broker. The Indian broker’s net worth should meet SEBI standards without considering the account of SBU. The SBU’s net worth will be determined by the regulations of IFSCA.

Investor Protection Mechanisms Not Applicable

  • Investors dealing with SBU issues in GIFT-IFSC will not have access to SEBI’s grievance redressal mechanisms, including:
    • The Investor Protection Fund of stock exchanges.
    • The SEBI Complaints Redress System (SCORES).
  • Grievance redressal for SBUs will reside outside the purview of the IFSCA or the designated regulatory authority.

Transition for Existing Subsidiaries or Joint Ventures

  • Those stock brokers who already have a subsidiary or joint venture in GIFT-IFSC after securing approval of SEBI also have the choice to disassemble such arrangements.
  • They can choose to switch over to carry on business through an SBU of the parent company.

Implications of the Circular on Stakeholders

Effect on Stock Brokers

Elimination of the requirement of prior approval from SEBI for carrying out activities related to the securities market in GIFT-IFSC streamlines the entry process. Brokers can now set up a Separate Business Unit (SBU) under the same legal entity, without having to incorporate a subsidiary or joint venture. This shift offers cost-effectiveness and operational flexibility, especially useful for brokers looking to venture into new possibilities in GIFT-IFSC. Moreover, existing brokers who have already established subsidiaries or joint ventures can also de-establish them and switch to the SBU format, which would enable them to consolidate operations and minimize administrative hassles.

Implications for Investors

While broadening the number of services to be offered in GIFT-IFSC, the circular also introduces investor protection considerations. Investors availing services through SBUs in GIFT-IFSC must note that such activities are regulated by the International Financial Services Centres Authority (IFSCA), not SEBI. Consequently, SEBI’s investor grievance redressal mechanisms such as SCORES, and protections like the Investor Protection Fund (IPF) of Indian stock exchanges, will not apply. This regulatory distinction emphasizes the importance of investors remaining well-informed and exercising due diligence while dealing with SBUs in GIFT-IFSC.

Role of Regulatory Authorities

The circular is a regulatory change whereby SEBI transfers jurisdictional oversight of SBUs in GIFT-IFSC to the IFSCA in its entirety. This delimitation is coupled with safeguards to ensure that activities carried out by SBUs are ring-fenced from those of the Indian securities market. Regulative requirements like keeping separate accounts, arms-length transactions, and net worth segregation between IFSC and domestic operations are required. Such delimitation avoids regulatory duplication, provides unambiguous accountability, and enhances systemic risk mitigation.

Wider Market Implications

Strategically, the circular facilitates India’s vision of establishing GIFT-IFSC as a financially competitive global hub. By facilitating regulatory routes and improving flexibility for market participants, SEBI is promoting increased participation and innovation in cross-border financial services. The success of this strategy, however, is dependent on the strength of IFSCA’s regulatory environment in maintaining market integrity and investors’ trust.

Conclusion

This circular represents a landmark regulatory change which is consistent with India’s vision to make GIFT-IFSC a trustworthy international financial centre. By eliminating the requirement for prior approval and facilitating stock brokers to carry out business through SBUs in the same legal entity, the circular improves ease of doing business, lessens structural impediments, and develops operational efficiency. However, the transition also demands sharper regulatory vigilance from IFSCA, especially in the absence of SEBI’s investor protection mechanisms. The circular’s safeguards, such as ring-fencing and net worth segregation, will be critical in mitigating systemic risks. Ultimately, its success hinges on IFSCA’s ability to maintain robust oversight while preserving market confidence in this newly liberalized yet distinct regulatory environment.

[1] https://www.sebi.gov.in/legal/circulars/may-2025/measure-for-ease-of-doing-business-facilitation-to-sebi-registered-stock-brokers-to-undertake-securities-market-related-activities-in-gujarat-international-finance-tech-city-international-financia-_93775.html.

King Stubb & Kasiva,
Advocates & Attorneys

Click Here to Get in Touch

New Delhi | Mumbai | Bangalore | Chennai | Hyderabad | Mangalore | Pune | Kochi
Tel: +91 11 41032969 | Email: info@ksandk.com