The Securities & Exchange Board of India (Sebi) appears to have succeeded in encouraging FIIs to invest directly in India. The markets regulator is also studying the possibility of allowing FIIs and NRIs to participate in the newly launched currency futures market, top Sebi officials said on Tuesday. Over 400 FIIs have registered with Sebi in the past ten months, after the regulator restricted participatory note issuances by FIIs to overseas investors last October.
Speaking at the Merchants? Chamber of Commerce in Kolkata, Sebi chairman CB Bhave said that before allowing FIIs and NRIs to participate in currency futures trading, ?We need to gather some experience about how futures are functioning and how people are participating in the market.?
Meanwhile, Sebi wholetime member TC Nair, speaking at an Assocham function in New Delhi, confirmed that the markets regulator is contemplating allowing FIIs to trade in currency futures, which were launched on the NSE on Friday. Sebi is also planning to launch interest rate derivatives by January, he said. It is also examining the introduction of other currency contracts like rupee-euro and rupee-yen. At present, only rupee-dollar exchange-traded currency futures are allowed.
?Between October and now, more than 400 FIIs have been registered in the country. Their number stands at over 1,400 today. It was about 1,000 at the time when we brought in some restrictions on P-notes,? Nair said. Sebi will register another 20-30 FIIs, whose applications are pending, in the next three months. ?We hope to clear them by December-January,? he added.
P-notes are derivatives instruments with shares or derivatives as underlying. These are issued by FIIs to their overseas clients who cannot directly invest in India. Last October, Sebi imposed various restrictions on P-note issuances in the derivatives market in order to moderate capital inflows and enhance transparency.
FIIs invested Rs 5.48 lakh crore, but also sold equities worth Rs 5.77 lakh crore up to September 1. Nair said the regulator had made the registration of FIIs in India flexible since October and the move had been successful.
?The number of sub-accounts has also gone up to 4,000, which indicates that the country has been very flexible as far as foreign investors are concerned,? he said. Nair admitted there are still restrictions as far as limits on investment or products are concerned. ?Once we have total capital account convertibility, there will be free flow of funds across the border, but that decision will have to be taken by RBI and the government,? he said.
Referring to Assocham?s demand to recognise hedge funds as a separate category, Nair said Sebi does not differentiate them from other FIIs.
The markets regulator allows hedge funds to register as FIIs. Assocham estimated that global assets of hedge funds to be in the $2-2.5 trillion range, growing at over 8% annually despite the subprime crisis. By 2012, their assets are expected to be over $4 trillion.
Bhave said Sebi would start a pilot project on an alternative mode of payment for public issues from September 8, starting with the IPO of Micron-20, a company in Gujarat. The payment system?called application supported by blocked amount (aka Asba)?will require retail investors bidding at a cut-off price to apply through self-certified syndicate banks (SCSBs), in which they have accounts.
Under this system, the application money will remain in the bank account of the applicant until the allotment is finalised. SCSBs will accept applications from investors, block the required funds for the bid payment and then upload the details via an electronic bidding system. Once the basis of allotment is finalised, SCSBs will release the required amount and unblocked amount.
While this mode of payment will be less taxing to retail investors, it will also eliminate the refund process.
Bhave said five banks?ICICI Bank, SBI, Corporation Bank, Union Bank of
India and HDFC Bank?have been selected as SCSBs for the Asba. A few select branches of these banks have been designated for the alternative mode of payment.