labels: investment - general, markets - general, sebi
FIIs must disclose PN holders identity: Sebinews
Our Market Bureau
18 July 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.

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FIIs must disclose PN holders identity: Sebi