Govt mulls expansion of collateral facility for FIIs

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New Delhi, Mumbai, Aug 17 : The government, together with regulators Securities & Exchange Board of India (Sebi) and the Reserve Bank of India (RBI), is examining the possibility of expanding the facility under which foreign institutional investors (FIIs) are allowed to submit foreign sovereign securities as collateral when trading in derivatives.

Currently, FIIs are allowed to submit AAA-rated US government securities as such collateral. In another important development, Sebi is also preparing a paper on the impact of commodity market developments on the financial markets. For this, Sebi had been asked to take inputs from the Forward Markets Commission (FMC), the commodity markets regulator, and RBI.

The last meeting of the high-level coordination committee (HLCC) of the financial markets, which includes Sebi and RBI, on August 1, discussed the possibility of expanding this facility now that it has been in place for some time.

Sebi had, through a circular in September 2007, made AAA-rated notified US government securities eligible for being submitted as collateral by FIIs. On May 30 this year, the National Stock Exchange (NSE), the country’s largest exchange, also specified to its clearing members and custodians the methodology for accepting foreign sovereign securities as collateral.

Sebi has now asked NSE to submit a report to it by September 15 on the experience gained by the exchange over the period of three months from May 30, on the usage of this facility. Once the report comes in from NSE, Sebi will brief the government on the experience, so that there can be a discussion at HLCC on expanding this facility for FIIs.

The commodity markets are being seen as increasingly influencing the financial markets these days. Sebi has decided to prepare the technical paper and present it to HLCC at its next meeting. RBI’s inputs were also being sought on gold since gold is considered a surrogate for foreign exchange reserves.