In less than a month after the Securities and Exchange Board of India (Sebi) issued a statement claiming all’s well on the foreign institutional investment (FII) front, the market regulator has found that FIIs were routing transactions on behalf of banned entities like Overseas Corporate Bodies (OCBs). It has also asked the RBI to take necessary action. It has initiated adjudication action against Citigroup for failing to disclose details of participatory notes (PNs) up to July 2003 to monitor funds coming through the FII route into the country, Sebi sources said. Besides, Magnus Capital Corporation, a Mauritius-based OCB, had subscribed to PNs issued by Citigroup and Goldman Sachs. The involvement of more OCBs is not ruled out. It may be recalled that the OCBs were banned from investing in Indian markets. In 1999-2000 also, many OCBs were illegally diverting funds from India. The ban on OCBs came after investigation into the 2000 stock scam. According to the Sebi report, Citigroup had issued PNs to CS First Boston, Switzerland—which was banned by the Sebi last year for its alleged involvement in the 2000 scam—against Indian securities whose details also have been sought. The final layer of investors in these PNs are not known and Sebi has sought more information from the two FIIs in this regard. Sebi chief G.N. Bajpai on Tuesday also warned that it would take stern action against FIIs who failed to disclose details on PNs issued to investors. Asked about the adjudication action initiated against Citigroup, Bajpai told reporters, ‘‘All FIIs must disclose details on PN investments on fortnightly basis’’. ‘‘If any entity (FII) does not provide information within the specified timeframe, it would be subject to regulatory process including adjudication.’’ He, however, refused to elaborate on the action against any FII. The FIIs who were leading the bull rally this year have invested close to $6 billion in 2003. This is the highest inflows by FIIs in a year since they were allowed to invest in India. They were also big players in the derivative segment. On October 31, Sebi had disclosed that 26.30 per cent (Rs 19,125 crore) of the total investment of Rs 72,965 crore made by FIIs in the Indian equity market was made through PNs route while the remaining has been made by overseas institutional investors classified under various categories. Sebi carried out an analysis of FIIs investment through PNs route which revealed that out of the 508 entities registered as FIIs with Sebi as on September 30, 2003, only 12 FIIs have issued PNs and the total value of underlying investment in equity represented by these instruments is Rs 19,125 crore. The analysis also indicates that FIIs investment through PN route is diversified over 200 different stocks, Sebi said. Sebi also maintained that FIIs issuing PNs also furnished confirmations to the regulator that they or their associates (sub-accounts) or clients have not issued the PNs directly or indirectly to OCBs. (With inputs from PTI)
