India's stock market regulator, Securities and Exchange Board of India (SEBI) yesterday banned French institutional investor Societe Generale (SG) from issuing fresh overseas derivative instruments (ODIs) / participatory notes (PNs) following its lapses in reporting details of the end beneficiaries of the issued notes.
In its order SEBI said, ''SG has failed to satisfy the basic tenet of 'know your client' (KYC) compliance when it issued ODIs. SG was not only unaware of the end beneficial owner but also did not have any mechanism in place to ensure that it can know the end beneficial owner.''
''SG completely failed in obtaining correct and complete information from the counterparties it deals with. SEBI, as a regulator cannot allow such an entity to continue with any activity in respect of the issuing and dealing with ODIs / PNs,'' the order further stated.
SEBI said that SG has prima facie violated its Foreign Institutional Investor (FII) regulations, and is required to show cause as to why appropriate proceedings including cancellation of its certificate of registration as a FII should not be initiated.
Societe Generale may file its objections/reply, if any, to the order, within thirty days.
According to SEBI regulations, the FIIs issuing the ODIs / PNs are required to provide particulars of the investor in case the same are issued onward to any other entity as a 'back to back' instrument. The responsibility for identifying, and the accountability for reporting the end beneficiaries, rests entirely with the issuer, the FII.