Sebi To Move Sec Over Fii Demat Trading

The Securities and Exchange Board of India is moving the Securities Exchange Commission (SEC) of the US to eliminate a major hurdle for SEC-regulated FIIs operating in dematerialised shares in India through the National Securities Depository Ltd.

Sebi will write to SEC to waive rule 17(f)(v), which allows SEC-regulated FIIs to operate only in those depositories which either have a net worth of $200 million, or are the only settlement and clearing facility of that country. This rule, therefore, is proving to be a stumbling block to the participation of the large US FIIs which are regulated by SEC. Once this is out of the way, the path will be paved for hefty volumes of trading in the demat segment from the US funds.

 

Confirming the market regulators move, Sebi chairman D R Mehta told Business Standard: We have taken up the issue with SEC. I have already had discussions with SEC requesting them to relax the rule for India. The letter from us will go in a day or two. Mehta said the feedback from SEC pointed to the fact that they were favourably disposed to the idea.

C B Bhave, managing director, NSDL, said the issue was being taken up by Sebi, following which the US SEC-regulated funds would be able to operate in the dematerialised segment through the NSDL.

Though we are the only depository operating in India now, the Indian situation provides for multiple depositories. Therefore, NSDL cannot claim to be a central depository. This issue will have to be explained to SEC, Bhave said.

Meanwhile, all top foreign bank custodians, which operate on behalf of the large FIIs, including the US-based ones, have joined up at NSDL as depository participants (DPs), Bhave pointed out. Besides, while the problem rule is being overcome, the European FIIs and those FIIs which are based in US but not regulated by the Securities Exchange Commission are also free to play in the demat segment through the NSDL facility, Bhave said.

The foreign bank custodians which have joined up with NSDL are Citibank, HongKong Bank, Standard Chartered Bank, Deutsche Bank and Morgan Stanley Custody, the NSDL managing director said.

The entry of these foreign bank custodians marks the imminent entry of the large FII players into the demat segment. The foreign players apart, the Indian custodians who have joined up include Stock Holding Corporation of India, the countrys largest domestic custodian, IIT Investrust, HDFC Banks custody department and ICICI custody, Bhave said.

On the banks side, Global Trust Bank has already joined NSDL, while Canara Bank, State Bank of India and TimesBank are expected to join up shortly.