FIIs to reverse short positions, says FM

But, gives no compliance deadline.

Finance Minister P Chidambaram on Thuresday said that the Securities and Exchange Board of India (Sebi) has asked foreign institutional investors (FIIs) to reverse short positions in equities created through shares borrowed overseas.

“Sebi has told them now that it disapproves of lending to offshore entities, and asked them to reverse those transactions. I am told that those transactions are likely to be reversed over the next few days,” Chidambaram said.

The Finance Minister added that Sebi has found one instance of possible inappropriate use of the overseas lending/borrowing window and FIIs have been asked to stop this activity henceforth.

However, Chidambaram did not mention any specific deadline for FIIs to unwind their positions, though he termed these overseas deals inappropriate.

While Sebi chairman C B Bhave was out of station, sources in the regulatory body said, “We have not given any deadline and you can just go by what the finance ministry is saying.”

Meanwhile, market players are awaiting additional data on deals struck by FIIs overseas. In a letter written on October 17, Sebi had asked all participatory note (PN)-issuing FIIs to submit by October 23 data on stocks lent overseas in 2008 so far. It is crucial and may clear the air over the massive short selling of stocks by FIIs in the current year.

So far this year, FIIs have sold a record over $12 billion in Indian markets out of their nearly $34 billion investment made in the past three years. Borrowed overseas, stocks worth Rs 1,000 crore have been short sold in the domestic market between October 10 and 17, causing over 12 per cent fall in benchmark indices.