New Delhi: Market regulator Securities and Exchange Board of India (Sebi) has ruled out relaxing curbs imposed last year on participatory notes, a derivative tool that enables unregistered foreign investors to invest in Indian stock markets.
“No. Sebi has already notified the regulations which arose out of October decisions,” Sebi Chairman C B Bhave told reporters when asked if there was any proposal to amend the regulations on participatory notes.
In October 2007, Sebi had imposed restrictions on Foreign Institutional Investors (FIIs) to issue participatory notes.
FIIs and their sub-accounts were asked not to issue fresh PNs against underlying derivatives and wind up their existing position in 18 months during which the market regulator will review the situation from time to time.
Various curbs were also imposed on their exposure to these instruments in the cash segment.
The decision was taken after a prolonged discussion among the Finance Ministry, banking regulator RBI and Sebi.
As on August 2007, there were 34 FIIs/sub-accounts issuing offshore derivative instruments (ODIs) and the notional value of PNs outstanding stood at Rs3,53,484 crore.
However, business dropped significantly following the Sebi ban on issuance of PNs to unregulated foreign entities.
Sebi has also asked FIIs to give an undertaking that these investment tools are not issued to non-resident (NRIs) and resident Indians, who otherwise do not need the FII route.
The market regulator took these steps apparently to curb the flow of funds through the controversial P-Notes, as there have been allegations of terror funds flowing into the stock exchanges through that route.
Former Sebi Chairman M Damodaran had said that Sebi had no clue about the credentials of investors using P-Notes to invest in the markets and the regulator wanted them to come through the “front door”.
Earlier, under that route, FIIs were not obliged to disclose their client details to Sebi, unless asked specifically.
Bhave also said the priority of the regulator was to implement common international standards for listed companies in terms of investor protection, corporate governance, disclosure requirements at the time of public issue.
It would also include accounting standards for continuous disclosure requirements that is adherence to international financial reporting standards (IFRS), he said.
“The earlier the country joined the international common standards the better it is,” he said, while appealing the chamber to take an initiative in this regard. He also said there was no proposal to integrate the BSE and NSE.