SEBI warns FIIs against lending stocks abroad

Mumbai: The Securities and Exchange Board of India (SEBI) has warned foreign institutional investors (FIIs) against lending and borrowing stocks to overseas entities, which could be used like short selling. The market regulator has warned of strict action against such practice.

''SEBI has been reviewing the data submitted by foreign institutional investors (FIIs) with regard to their stock lending activities abroad. While the stock lending mechanism has been made operational in the Indian market, SEBI finds that this facility has not been used by the institutions. SEBI is reviewing the difficulties in the use of the lending and borrowing facility and would be taking steps to make this mechanism more effective,'' a SEBI release said.

''SEBI disapproves of the overseas lending I borrowing activity of FIIs and the consequent selling pressure in the cash market in India. SEBI has communicated its disapproval to the FIIs. The lending and borrowing activity of FIIs is being monitored and if necessary stronger measures will be taken by SEBI as considered appropriate,'' the release added.

SEBI has asked custodians to communicate its directives in this regard to their foreign institutional investors (FIIs).

SEBI had last week sought details of participatory notes issued by FIIs and their agents to overseas entities which could be used like short sale.

''The foreign institutional investors, sub-accounts are required to submit information about the quantity of securities which they have lent to entities other than in the Indian securities market - where the Overseas Derivative Instruments are issued - which has the effect of a short sale in the Indian security," SEBI said.

Following this, 17 FIIs had provided information about participatory notes issued to overseas entities for the period October 10, 13 and 14.

According to the information provided to the market regulator for the period of October 10, 13, 14, the PNs issued to overseas entities had the largest number of ITC shares as underlying securities.