Sebi Okays Stiffer Norms For Participatory Notes Of Fiis

The board of the Securities and Exchange Board of India (Sebi) has approved stronger disclosure norms for participatory notes of foreign institutional investors (FIIs). It has, however, deferred its decision on margin trading.

The board also considered the proposal to introduce futures on individual stocks and approved, in-principle, the introduction of this type of derivative products initially in 31 scrips in which individual stock options have been permitted by Sebi.

The board has also introduced a new class of minor brokers -- trading-cum-clearing member -- with a net worth requirement of Rs one crore who can clear their own trades as well the trades on behalf of their clients but will not be permitted to clear the trades of any other broking members.

The issue of participatory notes (PN) had become a controversial one in the wake of the stock scam. Sebi had said that misuse of PN was an important route for bringing in unaccounted money into the domestic bourses. The government had been concerned that the PN route was allowing entities not registered in India to open sub-broking accounts in Mauritius with which India had a tax avoidance treaty and on the basis of such PN to trade in the stock exchanges.

Earlier, there were only two class of brokers including clearing members (with a networth requirement of Rs 3 crore) and trading members (with about Rs 50 lakh). The trading members were not allowed to clear their trades and were required to approach the clearing members for the purpose. It was a long standing demand of the brokers to allow the trading members to be able to clear their trades.

Sebi board discussed the need for margin traded and decided to await the recommendations of the Sebi-RBI technical committee which is deliberating on the subject.

The board decided to convene another meeting shortly to take a final view on the corporatisation and demutualisation of the stock exchanges. "The board discussed various legal, taxation and operational issues related to the matter and since the issues would be required to looked into great detail, specially in the light of international experiences, it was decided to take a final view on it during the next meeting," a Sebi statement said.

The board also decided to rationalise the fee structure for option contracts. The turnover fee on the option contracts shall be calculated on the premium traded and in cases where the options are exercised/settled, the turnover fee shall be calculated on the notional value of the option contract.