The finance ministry has constituted a working group to look at various types of foreign inflows, which are taking advantage of arbitrage opportunities across the respective stand-alone regulations.
Arbitrage is the practice of taking advantage of a price differential between two or more markets and involves the process of buying stocks and bonds in one market and immediately selling them in another market at higher prices.
The panel will study arrangements relating to use of participatory notes (PNs) and suggest any changes required to increase transparency.
PNs are instruments used overseas investors who invest in the Indian stock markets without registering themselves with the market regulator. Hedge funds, which invest through PNs, borrow money cheaply from overseas markets and invest these funds into stocks in emerging markets.
The working group will consist of members from the government, the regulators and the private sector and will be headed by U.K.Sinha, Chairman of UTI Asset Management Company.
The 16-member group will review the existing legal and regulatory framework on on foreign inflows, other than foreign direct investment (FDI), such as portfolio investments by foreign institutional investors (FlIs), non-resident Indians (NRIs) and other investments including those by foreign venture capital investors and private equity entities.
The group will “suggest specific short, medium and long term legal, regulatory and other policy change in respect to foreign investment,” a finance ministry statement said.
The group, which will submit its report within four months, will also re-examine the rationale of taxation of transactions through the securities transactions tax (STT) and stamp duty.