Sebi wants to make P-Notes route less attractive

Sebi may take a decision this week.

To discourage foreign investors from the participatory notes (PN) route, the Securities and Exchange Board of India (Sebi) will on Thursday decide on a proposal to lower the registration fees for foreign institutional investors (FIIs).

The regulator is expected to recommend amendments to the Sebi Act and the Securities and Contract Regulation Act to arm itself with more powers to deal with fraudsters. The amendments under discussion include powers to attach the assets of those found guilty of market manipulation, sources said. The move comes soon after the Satyam scam, when Sebi had to play second fiddle to local police and investigators.

In addition, the Sebi board is scheduled to discuss a host of other measures aimed at speeding the rights issue process and lowering the cost of investing in mutual funds.

According to sources privy to the discussions, Sebi has proposed that the registration fee for FIIs be cut to $5,000 (Rs 2.35 lakh) for a five-year licence, as against the present level of $10,000 (Rs 4.70 lakh) for a three years. Similarly, in case of sub-accounts, the registration fee is expected to be lowered to $1,000 (Rs 47,000) for five years from $2,000 (Rs 94,000) for three years, said informed sources.

Market participants said over the past month, when $3.5 billion (around Rs 16,500 crore) of foreign funds flowed into Indian capital markets, a large chunk came through the PN route. Sebi wanted more funds to be invested directly by FIIs and so, has proposed a cut in the registration fees, the sources said.

There is possibility of more such funds waiting to come through the FII route. The Cayman Islands Monitory Authority (CIMA), where over 3,000 hedge funds and FIIs are registered, has now become a member of the International Organization of Securities Commissions (IOSCO). The Cayman Islands have been famous as a tax-avoidance and regulation-avoidance haven.

“This is a good development, as all the hedge funds registered with CIMA can also be registered by Sebi. This move can bring in huge investment through FII route,” said Siddharth Shah, head funds practices, Nishith Desai Associates.

In the case of rights issue, the market regulator will discuss a proposal to further simplify the procedure, to help complete the issues faster. It is expected to lower the disclosure requirements related to promoter holding, capital structure, financial details, and summary of industry and business, sources said.

An interesting proposal is the introduction of variable entry loads for mutual fund investors. Sebi has earlier proposed an option for mutual fund investors to issue separate cheques for payment of commission to distributors and for investment. Alternatively, application forms will have a column where investors will mention commission payable to the distributor, which the fund house will deduct and pay.