We will review the entire policy regime for FIIs, says Bhave

The following are excerpts from Sebi Chairman C.B. Bhave’s discussions with the media after the regulator’s board met in Mumbai on Monday.

What’s the rationale for the decision to lift P-Note curbs on FIIs?

The framework regulating foreign investors was first put in place in 1992. We have decided to review the entire framework for foreign institutional investors. You must understand that all decisions have to be taken in a particular context. If you are referring to issues related to the colour of money that is coming in, we have made it mandatory for FIIs issuing P-notes to follow the know-your customer norms. The reversal has been done after a limited review of the P-note issue by Sebi board. Sebi will put out a consultative paper on the framework governing the participation of FIIs in the Indian securities market, as it needs a comprehensive review.
 
Why should anyone come directly after this relaxation?

You are assuming that the cost of coming directly (as a registered FII) and indirectly (through P-notes) is the same. However, P-note holders have discovered that there are counterparty risks also in the entire process. (Several P-note issuers such as Bear Stearns went bust because of the credit crisis in the US.)

Isn’t it unfair on those who have already registered?

We are talking about our markets. Being fair or unfair to others is secondary.

Is there any plan to ban short selling in India?

We already have structures in place in India. We would not want to copy reactions to a particular crisis. As for the stock lending and borrowing scheme, we have asked stock exchanges for feedback, as to why it is not working. 

What’s the progress in the plans for setting up an exchange for small and medium enterprises?

The SME exchange will either be a new exchange or a dedicated platform of the existing exchanges for listing and trading of securities issued by SMEs. We would like competition within this area. The board will come out with a suitable framework for recognition and supervision of such exchanges/platforms.

What about the norms for individual shareholding in demutualised stock exchanges

We have decided to enhance the limit for individual shareholders in demutualised stock exchanges to 15 per cent in respect of six categories of shareholders, namely public financial institutions, stock exchanges, depositories, clearing corporation, banks and insurance companies. 

Will Sebi consider moving towards a delivery-based settlement in futures and options segment?

For all these years, cash settlement has done well. So who wants to pursue delivery-based settlement in futures and options?