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Sebi cracks the whip on foreign investors

Sebi gives the foreign investors 24-hours to express their intention of registering sub-accounts, report Vyas Mohan & MC Vaijayanthi.

business Updated: Oct 22, 2007 20:29 IST
Vyas Mohan & MC Vaijayanthi

Market regulator Securities Exchange Board of India (Sebi) has given foreign institutional investors (FIIs) 24 hours to express their intent to get their sub-accounts registered just ahead of its board meeting on October 25.

A lot of FIIs prefer to buy and sell shares in India through their sub-accounts registered in tax havens like Mauritius. The sub accounts in turn issue participatory notes (PNs) to their clients based on their underlying Indian equity shares or derivatives.

Sebi chairman M. Damodaran said the proprietary sub-accounts must be registered with the regulator, which will bring out modified regulations on FII registration after the board meeting.

On Monday, Sebi cleared as many as 16 FII applications and said measures to curb PNs were not intended to curb capital inflows. Damodaran said the market regulator has received lot of responses from both domestic and foreign investors to its proposal early last week to curb inflows through PNs.

"We cleared 16 FII applications today... FII applications received till October 17 have been cleared now," he said.

Damodaran also made it clear that there was no proposal to extend the 18-month time-limit provided for FIIs to liquidate their holding of PNs beyond 40 per cent of their asset portfolio.

“There are 3,000 plus sub accounts. Those who want to convert we would be happy – they will pay only the differential registration charges and not full registration charges,” the SEBI chief told a group of FIIs in a video-conference attended by Morgan Stanley, UBS, Citi Bank, Goldman Sachs, Deutsche Bank Securities, Merrill Lynch, HSBC and CLSA, among others.

Last week, Sebi had put forth a proposal to regulate issuance of PNs to put an end to unknown entities investing in India through FII sub accounts.