Can Indians Trade in the US F&O?
With global markets more accessible than ever, many Indian residents are curious about investing in US equities or trading in futures and options (F&O). However, these transactions are governed by FEMA regulations and fall under the Liberalised Remittance Scheme (LRS).
In this blog, we address some frequently asked questions about how Indian residents can participate in US markets, the restrictions they need to be aware of, and the regulatory framework that guides these investments.
- Can an Indian resident remit money under LRS to trade in US F&O markets?
Indian residents cannot trade in foreign futures and options (F&O) markets. The Liberalized Remittance Scheme (LRS) allows individuals to send up to USD 250,000 abroad per financial year for specific purposes, like investing in foreign stocks. The LRS does not allow money to be sent for margin trading or derivatives transactions overseas, including futures and options. While investing in foreign stocks is permitted, trading in foreign derivatives is prohibited under current regulations.
Conclusion: Indian Residents can’t remit funds under the LRS to trade in the F&O segment.
- Can the money be remitted to the US to invest and trade in US equity?
Remittance of funds from India under LRS for Trading in US equity is permitted up to USD 250,000.
- How about using dollar proceeds from salaried RSU to trade US F&O or invest in US equity?
RSUs are restricted stock units, like ESOPs, and are a type of stock-based compensation that employers might offer as a benefit. There may be instances where an Indian resident would have earned RSUs in a foreign entity.
Once the vesting period that comes with RSUs is completed, the RSUs are converted into actual shares of the company’s stock.
The employee then owns these shares and may sell them or hold them, subject to any restrictions the company may impose.
Once RSUs, or the shares are sold, it would be obligatory on the part of the resident Individual to repatriate the funds to India as per Regulation 3 of the FEM (Realisation, Repatriation, and Surrender of Foreign Exchange) Regulations, 2015.
“Regulation 3 of the FEM (Realisation, Repatriation, and Surrender of Foreign Exchange) Regulations, 2015 requires that any person living in India who is owed or has earned foreign exchange must, unless otherwise permitted by law, regulations, or the Reserve Bank of India (RBI), make every effort to collect and bring that foreign exchange back to India.”
The person must not do or avoid doing anything that would:
(a) Delay receiving the full or partial amount of the foreign exchange, or
(b) Cause the foreign exchange, either fully or partially, to become uncollectible.”
The above rules are applicable if the share is listed on the foreign stock exchange. However, if the RSU is an unlisted share, it will be considered an ODI (overseas direct investment)
In the case where the equity acquired on the vesting of RSU qualifies as ODI, then in such case, as per regulation 9(4) of the Foreign Exchange Management (Overseas Investment) Regulations, 2022., a person resident in India having ODI in a foreign entity shall realize and repatriate to India:
(a) All dues receivable from the foreign entity with respect to investment in such a foreign entity,
(b) the amount of consideration received on account of transfer or disinvestment of such ODI and
(c) the net realisable value of the assets on account of the liquidation of the foreign entity as per the laws of the host country or the host jurisdiction, as the case may be,
within ninety days from the date when such receivables fall due or the date of such transfer or disinvestment or the date of the actual distribution of assets made by the official liquidator.
Conclusion: In our view, the proceeds on sale of RSUs have to be brought back to India. Hence, such an amount cannot be used to repurchase equity or trade-in F&O.
Please note that these rules are subject to interpretation and updations. Please check with your FEMA specialist for your specific queries.
The views and opinions expressed in this blog are those of the author. All content provided is for informational purposes only and should not be taken as professional advice.
