Probe Into Price Hammering By Fii Cartel Ahead Of Gdr Issues

This forms part of Sebis stand on the issue of short-selling, which will come up for decision at the Sebi board meeting scheduled for October 29.

Both the finance ministry and the capital market watchdog have agreed in principle that an arms length policy should be followed in the matter.

However, the capital market regulator has been asked to examine the issue since specific charges of cartelised price beating have been made, ministry officials said.

Last month, an FII was charged with resorting to short-sales, following which Sebi launched a crackdown on all market players and also investigated the FII in question.

 

The FII had denied the charges, saying that it was waiting for the delivery of shares from the seller.

The pressure to arrive at a consensus on the matter is growing after repeated charges by the corporate sector and market players alike that the FIIs are systematically beating down domestic prices to pick up shares at a discount in the international market.

The latest salvo has been fired by VSNL chief B K Syngal who has named several FIIs for systematically beating down the VSNL share price in the run-up to the governments proposed divestment.

Moreover, arbitrage opportunities are immense for the FIIs. Because of their access to the domestic as well as international markets, they are able to profit by offloading shares in the domestic market and buying the corresponding GDRs abroad.

This works to their advantage since the GDR price is generally at a discount to the ruling price in the domestic market. It has been charged that the FIIs are able to exit at higher prices and re-enter the market through the GDR route at a lower price through systematic price beating.

The FIIs have defended the charge, saying that they have been forced to adopt this course since existing norms do not permit them to exchange their domestic holdings for the international offering as is permitted in several countries.

This is because such an exchange would amount to a capital account convertibility which is not yet permitted in the Indian context.