What began as a licence for brokers to offer Indian clients access to international markets through GIFT City has evolved into a broker’s tool for managing costs and taxes.
A growing number of brokers are getting the GAP license not to build a global investing business but to route their own prop trades through GIFT City. Currently half of the GAP license holders are prop firms. The shift is driven by a combination of lower regulatory costs and greater flexibility in accessing global markets.
Out of the 14 GAP license holders at present, seven are using the license to manage their own money—also called prop trading—while the remaining seven are providing the service to individuals in India, said Pradeep Ramakrishnan, executive director at the International Financial Services Centres Authority.
Some of the GAPs that are using their license for prop trading include Junomoneta International IFSC Pvt. Ltd, K2J Global (IFSC) LLP, and IBISP IFSC Pvt. Ltd.
GAPs are entities regulated by the International Financial Services Centres Authority (IFSCA), which give access to Indian individuals to trade in international markets. While the framework was originally designed to give Indian investors access to overseas markets through regulated intermediaries, an increasing share of licence holders are using it primarily for proprietary trading.
The structure also gives prop firms a direct line to international brokers, skipping the multi-layered routing. If a firm spots opportunity in Taiwan or South Korea, it can tie up directly with local brokers rather than wait for an exchange to establish a formal link.
A global access provider can be the subsidiary of a registered stock exchange that is providing access to global markets, such as India INX Global Access IFSC Ltd, which is run by BSE and NSE IX Global Access IFSC Ltd, which is owned by the National Stock Exchange. A GAP can also be a broker registered with IFSCA, who has a direct arrangement with a foreign broker to execute trades either for themselves or for clients.
The cost math that makes it worthwhile
Brokers are choosing prop trading over servicing clients in GIFT City due to a differentiated fee structure. When a broker establishes a subsidiary in GIFT City and obtains the GAP license, they must pay a quarterly recurring fee to IFSCA. This fee is lower and capped at a certain amount if the broker engages in prop trading, leading to substantial cost savings.
For client business, the fee paid to IFSCA is 0.000075% of the quarterly turnover for derivatives and 0.005% for products other than derivatives. For the prop business, both costs remain the same, but the total fees to the regulator are capped at $10,000 per quarter. So, even if the quarterly turnover costs exceed the cap, the prop firm will pay only $10,000.
To put it simply, if the quarterly turnover is $20 billion and the client has traded through the GAP broker in US stocks, the fee payable to the regulator would be $1 million. However, if the broker is trading on its own money, the fee would be capped at $10,000.
Similarly, a broker trading in derivatives in the international market with $20 billion in turnover would have to pay $15,000 if they are servicing a client and only $10,000 if they are trading on their books.
“We can save up on turnover costs if we get the prop license for trading globally. However, a medium-sized broker would not do this. Only larger brokers with higher volumes seeking access to multiple global markets would find it worthwhile,” said a prop firm official.
Industry executives also say flexibility has emerged as a key reason proprietary trading firms are increasingly opting for a GAP.
The tax angle
A broker would also want to obtain the GAP license and engage in prop trading via GIFT City to benefit from favourable taxation. Entities in GIFT City pay no tax on business income for 20 years. A prop-firm registered in GIFT City and with on-the-ground substance, such as an office space and manpower, is eligible for a 20-year tax holiday.
“The profits or capital gains generated from proprietary trading on global exchanges will be treated as the entity's overall business income and are hence eligible for the 20-year tax holiday,” said Nitesh Jaiswal, CEO at Jaypee Capital Services IFSC.
If any investor sitting in India trades using GIFT, he won’t get the leeway on capital gains, experts said.
The total traded value on INX Global Access, acting as a GAP broker for the India INX exchange in GIFT City, was $39,025.58 million in December, according to the IFSCA quarterly bulletin. A similar number for NSE IX was not available.
- Half of GAP licence holders now use it purely for prop trading.
- A $10,000 quarterly fee cap makes prop trading far cheaper than client business.
- Prop firms bypass intermediary layers, gaining faster and more direct global market access.
- GIFT City's 20-year tax holiday extends to proprietary trading income for resident entities.