Barclays halts sale of exchange-traded notes

Barclays halts sale of exchange-traded notes

Mumbai: Barclays Bank Plc suspended sales of its exchange-traded notes linked to Indian stocks after the country’s capital markets regulator ordered the bank’s local unit to stop selling or trading offshore derivatives.

Barclays discontinued sales of its iPath MSCI India Index Exchange Traded Notes, the London-based bank said on Thursday in a statement. The iPath notes are the second largest exchange-traded product linked to Indian equities, with assets of $1.1 billion (Rs5,137 crore), according to Bloomberg data.

The regulator on Wednesday accused Barclays of providing incorrect and false information, including the identity of counterparties, about offshore derivatives. The London-based bank demonstrated blatant disregard for the rules and must show adequate controls are in place before it resumes selling the instruments, the agency said. Barclays, which has until 18 December to respond, said it’s cooperating with the regulator.

“We do not believe that use of notes will dwindle because of this suspension," said Akil Hirani, managing partner at law firm Majmudar and Co. “The know-your-client norms have been in place since some time now, and the onus is on the foreign institutional investors to follow them."

Barclays said on Thursday that suspending sales of theiPath notes, traded on the NYSE Arca stock exchange, may cause fluctuations in trading value. Daily redemptions at the option of the holders won’t be affected, the bank said.

Barclays said last month it planned to double its investment banking team in India, where the benchmark stock index has surged 78% this year and sales of equity-linked derivatives totalled Rs1.25 trillion at the end of October.

The bank confirmed that it had received a show-cause notice from the Securities and Exchange Board of India, or Sebi. “We have been and will continue to cooperate fully with Sebi as it examines certain offshore derivative transactions," Barclays said in an emailed statement late on Wednesday.

Derivatives are securities whose value is derived from an underlying asset such as stocks, bonds, commodities or currencies.

Sebi lifted curbs on overseas investors in October last year in a bid to stem record sales of assets by offshore funds that triggered a 52% slide in the benchmark Sensex index in 2008. The agency has been tightening rules, requiring brokers to disclose information about the terms of derivative instruments and the investors to whom they are sold.

Barclays provided incorrect and false information when issuing offshore derivatives, Sebi said in a late Wednesday statement. The bank sold instruments linked to the shares of Reliance Communications Ltd to Hythe Securities Ltd and incorrectly reported that they were issued to ,UBS AG, Sebi said. Hythe then sold the notes to Pluri Emerging Companies PCC Cell E Emerging Markets Growth Fund, while Barclays reported they weren’t reissued, Sebi said. This shows the blatant disregard by Barclays in complying with the provisions of the foreign institutional investor regulations, Sebi said in its statement.