Less than a week after it proposed curbs on the use of unregulated Participatory Notes (PNs), the Securities and Exchange Board of India (Sebi) today initiated the process of speeding up the registration of foreign investors and allaying the fears expressed by foreign funds. However, making it clear that the major proposals in its discussion paper on PNs will remain, Sebi said that FII sub-accounts will not be allowed to issue PNs any further and the 18-month period to wind up derivatives positions taken through the PN route will not be relaxed. The regulator also cleared the applications of 16 foreign investors for registration as foreign institutional investors (FIIs) today. It said proprietary sub-accounts of FIIs that want to convert to FIIs should send the applications within a week. In a video conference with leading FIIs, Sebi chairman M Damodaran said, “We cleared 16 FII applications today. FII applications received till October 17 have been cleared now.” Damodaran also made it clear that there was no proposal to extend the 18-month time-limit provided for FIIs to liquidate their holding of PNs beyond 40 per cent of their asset portfolio.On why Sebi wants to curb PNs, he said, “It was perhaps believed that there was no special merit in registering as an FII and you could continue to be the entity that you were and access the Indian markets indefinitely in the same manner that you had accessed it recently. That scenario I’m afraid is in the process of undergoing change. We do not want a market indefinitely having elements of non-transparency. and therefore we want a situation where we know who is in our market, we know the quality of money that comes into our market, and we are comfortable with both of those. That is the purpose for which we are trying to discourage one category of participatory notes.” Sebi added that it was revisiting the category of entities that seek FII status. The capital market regulator is also mulling FII registration of more than one entity from the same group. To encourage more and more sub-accounts to convert themselves to FIIs, Sebi said that sub-accounts converting to FIIs need not pay full registration charges. Such entities will have to pay only the difference in charges.“We on our part will seek to expedite the process of regulatory registration as well as revisit the content of regulation to see what other categories of investors that were until now kept out of the registration process can be facilitated to access the Indian market by being included as eligible entities in the registration process. We have got started on that already,” the Sebi chairman informed. On proprietary sub-accounts, he said, “The regime that I want to prescribe is this: those sub-accounts that are described as proprietary sub-accounts, if they are interested in converting to FIIs, will send to us within 24 hours of this conference a letter of intent indicating that, yes we intend putting in our application to be treated as an FII upon such application being registered. I would expect that application, complete in all respects, should reach our office within a week from now.” The scenario of FIIs now investing in India in some other name will change, he said, adding that the responses to the proposed guidelines were adequate to take the process forward.Sebi said FII sub-accounts can continue to trade in the Indian markets. Damodaran said they would not, however, be allowed to issue PNs. The Sebi proposals restricting the issuance of PNs are not aimed at curbing capital inflows. He said an expert panel is working on PNs based on derivatives and its recommendations, along with FII registration norms, will be announced after the October 25 board meeting of Sebi.REGULATOR ON MOVE •More than one entity from same group may get FII registration•Sebi revisiting category of entities seeking FII status •Ban on sub-accounts issuing PNs
