Call it confidence building, Sebi-style. Chairman Meleveetil Damodaran on Monday unveiled a number of important measures aimed at assuaging foreign institutional investor (FII) concerns over the participatory notes (PN) restrictions and smoothening the process of FII registration.
However, Sebi has also made it clear that some critical elements of its draft proposals on PNs would be unchanged: FII sub-accounts will not be allowed to issue PNs any further and the 18-month period to wind up derivatives positions taken through the PN route will not be relaxed. Damodaran was speaking to a clutch of important FIIs via a conference call on Monday evening.
The Sebi chairman also said the regulator has received adequate response from market participants on the draft proposals regulating FII investments into India through PNs. Among the major proposals put forward by Sebi on Monday were allowing proprietary sub-accounts to be converted into FIIs. Damodaran said proprietary sub-accounts that wanted to convert into FIIs should submit their applications within a week.
Sebi said it has received encouraging feedback on the PN issue and the response it generated is adequate to take the issue of PNs forward. Leading and active FII players in the Indian market like Goldman Sachs, Citigroup, Merrill Lynch and CLSA, among others, participated in Sebi?s conference call.
Sebi also said it was revisiting the category of entities that seek FII status. The Indian regulator is also mulling FII registration of more than one entity from the same group. Sebi said sub-accounts converting to FIIs would not need to pay full registration charges, only the difference.
Damodaran said Sebi?s intent is that PNs should have Indian equity or debt paper as underlying securities and does not want the capital market to be opaque. Making it clear that FII sub-accounts could continue to trade in the Indian markets, Damodaran reiterated that they would not be allowed to issue PNs.
The Sebi proposals restricting the issue of PNs are not aimed at curbing capital inflows, the Sebi chairman clarified. He said an expert panel is working on PNs based on derivatives and that its recommendations, along with FII registration norms, would be announced after Sebi?s October 25 board meeting.
The Sebi chief said the response to FII registration had been lukewarm so far, but Sebi has cleared applications from 16 FIIs for registration since Monday morning.
He also tried to allay the misconception that delays in FII registration, if any, were due to Sebi. He said all FII applications seeking registration from Sebi until October 17 were granted on Monday. Citibank was one of the FIIs whose application was cleared on Monday, he added.
Damodaran?s comments on Monday generated positive reactions. Vijay Mantri, CEO, Deutsche AMC, said, ?The Indian regulator is very clear in its intent. Sebi is concerned with the kind of money that is flowing into the Indian capital market. The steps that it is taking are to mature Indian markets further. Regulators from across the globe have taken steps to bring about more transparency.?
Jignesh Desai, head-institutional business, SBICAP, said, ?There were some positive statements coming from Sebi. They have given clearance to 16 FIIs in a single day, which points to the fact that the processing of FII applications would be made much faster. However, to get an overall picture on the PN issue, we should wait until October 25, when Sebi finalises the draft guidelines.?
