Sebi strengthens monitoring of foreign investments in IRF

To keep a tab on possible speculation, Sebi has put in place a stronger monitoring mechanism to ensure that exposure of foreign institutional investors to Interest Rate Futures (IRF) do not cross a certain limit.
The Securities and Exchange Board of India (Sebi) today asked market participants to keep information about aggregate gross long positions of FIIs in IRF on a daily basis.
An IRF is a contract between a buyer and a seller agreeing to the future delivery of any interest-bearing asset such as government bonds.
"Stock exchanges shall provide information regarding aggregate gross long position in IRF of all FIIs taken together at end of the day to the depositories -- NSDL and CDSL -- and shall also publish the same on their website," Sebi said in a circular.

Generally, a long position refers to when an investor holds a security with expectations of gains in the future.
The depositories are now required to aggregate the gross long position of FIIs in IRF in each stock exchange. This exposure of overseas entities along with their investments in government securities should be taken into account for monitoring their adherence to prescribed regulatory limits.

FIIs are allowed to investment a maximum of USD 25 billion in government securities.
According to the circular, in case the total of cash and IRF of all FIIs reaches 85 per cent of the permissible limit, the depositories would have to inform Reserve Bank of India (RBI), Sebi and stock exchanges.

Once FIIs utilise the maximum exposure limit of of 90 per cent of limit, they should not further increase their long position in IRF. This restriction would be in place till the overall long position of FIIs in cash and IRF comes below 85 per cent of existing permissible limit, the circular said.
As per the decision, taken after consultations with RBI, FIIs violating these norms would attract "stringent action".
Last year, Sebi had said that foreign investors can not take positions that exceed 10 per cent of open interest or Rs 600 crore, whichever is higher.