Ahead of the 32nd annual conference of the International Organisation of Securities Commissions, where regulators across the world discuss key regulatory issues, SEBI chairman, M Damodaran shares his views on issues like P-notes, real-estate IPOs and stock lending mechanism.

The SEBI Board has approved stock-lending mechanism and the structures for stock lending and short selling are in place.

CNBC-TV18 shares with domain-b, its exclusive interview with Damodaran:

What are your views on P-Notes?
I think it's necessary to understand the nature of the instrument. These are offshore derivative instruments issued outside India by registered FIIs to investors outside India.

What you can do is, with whoever you have a privity of contract of relationship, which your registered FIIs are asked to give as an undertaking so that they know who the holders of the Participatory notes are, the FIIs in terms of the FII regulations do it month after month. We have no reason to disbelieve every such statement that is made.

Should evidence come to our notice that there is something that we need to look at, clearly we will ask questions. We will want to know the names of the holders; we would want to know whether these are entities that cause regulatory concern because the basic principle of regulation in such a situation is whether the home country regulator is satisfied with that entity. So are these entities that are registered, as they are regulated in their home jurisdictions. These are some of the issues that get raised continuously.

We, in any event, recognise that as long as the India growth story is good, as long as some people cannot access our markets directly - given who they are, the nature of institutions that they are, there will always be tendency for people to come in via the Participatory note route.

There are also people who will tend to use this route because of the cost associated with setting up a research unit, back office, etc, for direct investment. This is an issue that we are looking at continuously to see how to facilitate more people coming into our markets directly and at the same time, seeing that the ODI is a less attractive option.

Sometimes there are very large disparities in the daily disclosure of provisional FII numbers; a $150 million 'sell' provisional turns out to be $150 million 'buy' the next day. How can you ensure that a more accurate picture is provided to investors, which have been coming in?
What you are referring to is a couple of occasions. I don't think it happens everyday. Reports having come from different sources and explanations have been put out as to how these different numbers were arrived at. What had been factored into those numbers and what hadn't and I think the market clearly understands these numbers.

The numbers that we put out and what these numbers comprise are matters that institutional investors in the markets certainly understand and we have not heard that causing any disproportionate confusion in the market.

Has a regulator actually held back some of the newer IPOs which have come for clearance to you, particularly from the real-estate sector? Are you concerned as a regulator about what has been happening in the primary market particularly over the last few months?
I don't think we have had held back issues. We sought clarity from those that have brought issues to us on matters like what does your land bank comprise, what are the valuation aspects that you have indicated and things of that kind because I want to use this opportunity to clarify what we do in regard to the IPOs.

We don't approve IPOs, we don't disapprove IPOs, we ensure that disclosures are complete and correct, we hold those that bring the issues to us responsible for complete and correct disclosures, and we insist that that is the basis on which the product must be offered to the market.

Now, if there are statements there that are not clear enough to us, we believe that they will lack clarity to the investors also and therefore there is a process in which we engage those that bring the issues to us, to bring more clarity and consequently more disclosures into the offer documents.

This takes a little time and therefore it is not that we are holding back issues because some particular sector is causing us discomfort - far from that. You have seen some issues in the past, but there are issues of statements say that, we might be less than comfortable with the clarity that is contained in those statements. So this is the process that we are engaging in at this point of time.

So you are uncomfortable with standards of disclosure or levels of disclosure for the recent real estate IPOs?
What we look at really, is what is it that they claim to be the land under their ownership, the valuation of that land and whether there are complete and correct disclosures.

Since the Atlanta episode, there has been a lot of interest in what SEBI has done and what it can do further. What has happened in the primary market, both with the issues and post-listing as well in the last three - four months is some stocks, not just Atlanta, seem to have moved very fast and this is causing a lot of apprehension and concern to a lot of retail investors. What is the regulator doing about this specifically?
What you seen happening in day one of the listing in regard to some of the stocks is that they have run up significantly, and that happened because to enable the process of price discovery, we do not have a filter in place. Now there are suggestions that have come to us, that you should have price bands, circuit breakers for that kind of activity even on day one, and we are looking at some of those issues.

Where we find that there is clear evidence pointing to manipulation in the marketplace, we are responding quickly enough. If you look at the pace at which we respond to what we see prima-facie as misconduct to the market place and the pace at which some of the other regulators elsewhere have responded, you will then notice that we are in fact faster then most people in regard to some of the actions that we have taken.

What I would also want to urge the investors through you is that they should not look at price on listing day and start computing losses and profits. I believe the average investor does not come into the market to sell on day one; the average investor comes into the market because he or she believes that this particular stock is worth staying with for a while and that it will deliver value over time.

If you start computing losses on day one and then also if you have figures that are put out of how much has been lost because loss can take place only when people sell, otherwise loss in values is notional. So investors coming to the market for the right reason, staying invested in the right stock for the right reasons is important for the market rather than arithmetical calculations of, if everybody sold on day one how much would have been lost, if an issue lists at a price list than what it is offered?

One word on stock lending and borrowing because it was mentioned in the Finance Minister's Budget as well. We have spoken about this quite a few times in the last many months but somehow the structures are still not in place. Anything particular, which is holding back progress on this one?
We had a decision taken by the SEBI board to bring this particular practice in place for institutional investors. Subsequently there was a process of consultation with others that were required to be consulted that took a while; now that there is clear, unambiguous statement in the Budget speech and the structures are in place, we know what to do with stock lending and borrowing mechanism which is the enabling mechanism to ensure that short selling accompanied by delivery is taking place and therefore, you will see action on this sooner rather than later.