Date:07/10/2008 URL: http://www.thehindu.com/2008/10/07/stories/2008100756301600.htm

Business

SEBI lifts curbs on Participatory Notes

Special Correspondent

Raises limit of shareholding in a stock exchange to 15 %

To put out consultative paper for public comments
SMEs with Rs. 25-crore capital can list

— PHOTO: PAUL NORONHA

REVIVING MARKETS: C. B. Bhave (left), Chairman, Securities and Exchange Board of India, with M. S. Sahoo, whole-time member, at a press conference in Mumbai on Monday.

MUMBAI: The Securities and Exchange Board of India (SEBI) on Monday decided to do away with the restrictions on issue of Participatory Notes (PNs) by foreign institutional investors (FIIs) against securities, including derivatives, as underlying.

The Board had decided on October 25, 2007, that no FIIs and their sub-accounts can issue fresh overseas derivative instruments (ODIs) or PNs and also directed that the existing ODI issuing sub-accounts have to ensure that they wind up all their ODIs within 18 months of implementation of the proposal.

“The Board undertook a limited review of the FII regime in respect of overseas derivative instruments, popularly known as Participatory Notes (PNs). This review was due in terms of the decision that was taken along with the decision taken in October 2007 and decided to do away with restrictions on issue of PNs by FIIs against securities, including derivatives, as underlying,” said C. B. Bhave Chairman, SEBI, after the board meeting here.

The Board felt that the framework governing the participation of FIIs in Indian securities markets needed a comprehensive review. Accordingly, it decided to put out a detailed consultative paper on this for comments from the public. It also reviewed the position with regard to registration of FIIs and sub-accounts in the last one year; 397 FIIs and 1,160 sub-accounts have been registered since October 31, 2007.

The Board has also decided to enhance the limit of shareholding in a recognised stock exchange from 5 per cent to 15 per cent in respect of six categories of shareholders, namely, public financial institutions, stock exchanges, depositories, clearing corporations, banks and insurance companies. This decision was taken “in order to encourage competition in the exchange space,” said Mr. Bhave.

The small and medium enterprises (SMEs) with a post-issue paid-up capital of up to Rs. 25 crore would be listed on dedicated exchanges or platforms and the trading lot would be Rs. 1 lakh. “In recognition of the need for making finance available to needy small and medium enterprises, the Board decided to encourage promotion of dedicated exchanges and/or dedicated platforms of the exchanges for listing and trading of securities issued by SMEs,” SEBI said. Mr. Bhave said that multiple exchanges or platforms would provide the necessary competition in this space. SEBI will come out with a suitable framework for recognition and supervision of such exchanges or platforms.