FIIs must disclose PN holders identity: Sebi
By Our Market Bureau | 18 Jul 2005
Mumbai:
The Securities and Exchange Board of India (Sebi) has
told foreign institutional investors (FIIs) that their
clients must be informed that information on their participatory
note (PN) investments would be made available to the market
regulator as and when it sought details from them.
PNs
are derivative instruments whose underlying securities
are Indian stocks and are issued by FIIs to overseas investors
who want to invest in Indian stocks but are not allowed
to do so. According to Sebi sources the regulator has
already zeroed in on 4-5 FIIs that are aggressive PN investors.
In
fact, 101 new FIIs registered themselves with Sebi in
2005, taking the total number of FIIs to 738. FII investments
have grown rapidly, with as much as $5.44 billion pumped
into India so far this calendar year.
The
officials said the regulator would also seek information
from FIIs at random about their issuance of PNs. Also,
it has made clear to the major FIIs that they needed to
be ready with information on PNs since the regulator could
anytime seek information on sources of funds.
In
an earlier interview, Sebi chairman M Damodaran had told
FE, "the jury is still out" on the benefits
or otherwise of excessive FII flows. "The basic idea
also is to see whether Indian money itself is coming back
through the PN route. The sources of such funds continue
to be an issue," a Sebi official said.
PNs
and offshore derivative instruments (ODIs) are essentially
routes through which overseas investors can invest through
FIIs in the Indian markets, but also have the benefit
of remaining anonymous. The controversial PN route again
came into sharp focus recently, when Sebi passed an order
on UBS Securities for allegedly being one of the entities
that caused the massive 565-point crash in the Sensex
on May 17, 2004. UBS has challenged the Sebi order at
the Securities Appellate Tribunal (SAT) and the case is
to come up on Monday.
Interestingly, Section 20 of Sebi's FII rules clearly says every FII shall, as and when required by the market regulator or RBI, submit as the case may be, any information, record or documents in relation to its activities as a FII as may be required by the regulators.
