Mumbai: Securities and Exchange Board of India, or Sebi, has scheduled a meeting on Monday to review fund flows through participatory notes, or PNs, among other issues, according to some foreign institutional investors, or FIIs, and local brokers.
They expect Sebi to impose restrictions on offshore lending and borrowing of stocks under the PN inventory for short selling.
Senior Sebi officials refused to comment on the itinerary for the meeting.
Sebi chief C.B. Bhave had earlier said there were no plans to ban short-selling in the local market. Since there is not much action in the local securities lending and borrowing platform, there is very little short-selling by FIIs, locally. Globally, however, market regulators have been chasing short-sellers during September.
Whenever FIIs issue a PN to their offshore clients, they buy underlying shares to hedge their bets. They can no longer take the underlying position using derivatives, since Sebi banned the use of derivatives for issuing PNs a year ago.
FIIs have been lending these shares to short-sellers overseas.
According to a Hong Kong-based senior executive of a foreign brokerage operating in India, who did not wish to be named, a move to clamp overseas borrowing and lending of PN inventory will boost stock valuations in the short term as it reduces downward pressure. But he also expects this could damage the reputation of Indian markets.
To read our 12 August story “PN stock powers short sales abroad”, Click Here-