Sebi rolls back P-Note curbs

REGULATORS STEP IN AS MARKETS SUFFER ANOTHER MONDAY MELTDOWN

The Securities and Exchange Board of India (Sebi) lifted curbs on foreign institutional investors (FIIs) imposed a year ago to stem huge sales by FIIs that have triggered a 42 per cent slide in the Sensex this year.

A requirement forcing investors to register in India before buying shares and limits on offshore derivatives that were imposed last October will be lifted with immediate effect, Sebi Chairman CB Bhave said after a board meeting in Mumbai. “We’ve gone back to the pre-October position,” he said.

Under the October rules, foreign investors could only issue offshore derivatives linked to stocks up to a limit of 40 per cent of assets under custody as of September 30.

The regulator also overturned rules that banned overseas investors from issuing participatory notes (P-Notes) on derivatives. This means investors can issue P-Notes on single stock and index futures and options.

Bhave said the reversal was done after a limited review of the P-Note issue. Sebi will put out a consultative paper on the framework governing FII participation in the Indian securities market.

P-Notes are issued by Sebi-registered foreign investors to unregistered overseas investors and the identity of the instrument holder is not known.

Investors also had to be regulated in their home countries before they could apply to invest in Indian stocks. Last year, 397 FIIs, and 1,160 so-called sub-accounts have registered to buy shares, the regulator said.

The curbs by M Damodaran, Bhave’s predecessor, were imposed when the Sensex was trading near 21,000 and the FIIs had pumped in close to $18 billion in the domestic equity markets raising fears among policy makers that “hot money” was making its way into the country.

However, in the first nine months of 2008, FIIs sold stocks worth $9.2 billion, driving the rupee to a 5 1/2 year low, partly on account of the global financial crisis.