SEBI welcomes smart money into India, but that should be clean: This was the message the market regulator M Damodaran conveyed to the investing community on Monday. He was speaking to a host of foreign institutional investors to clarify some finer details on SEBI’s proposals to limit use of participatory notes (PNs) to invest in India.

‘‘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,’’ the SEBI chief said. ‘‘That is the purpose of which we are trying to discourage one category of PNs,’’ he added.

Videoconferencing with FIIs, Damodaran said the regulator had enough number of responses to move ahead with its proposals which will be discussed at its next board meet on Thursday. He also said SEBI had cleared 16 FII applications during the day and all of those received since October 16. Citibank, which so far operated in the Indian market using the sub-account route, has got FII registration.

Among the main points of Damodaran’s conference was that FIIs who run sub-accounts only for PN trades will have to discontinue the same. SEBI will allow proprietary sub-accounts to be allowed to register as FIIs. Market players welcomed the moves saying that under such rules proprietary trading by large foreign brokerages will be much more regulated.

The SEBI chief said it was revisiting a category of entities that seek FII status. At present only regulated corporate entities, including some hedge funds, are allowed FII registration. The market expects SEBI to consider giving FII registration to groups of foreign nationals. It might also be considerate to those funds seeking FII registration where the fund manager is an Indian and the fund is promoted by Indians or PIOs. At present while foreign individuals are not allowed FII registration, it’s almost impossible for an Indian promoted fund to get FII status.

SEBI said it will look into cases where PN investments could be shifted as an FII investment after completing the registration process. However, as a top foreign broking house official pointed out, this shift will attract securities transaction tax (STT) and they were not clear whether the same could be exempted under the changed rules.

Damodaran also said sub accounts will be allowed to register as FIIs. They need not pay full registration charges but only the difference in charges. From the market it was a mixed reaction. While local players were upbeat, foreign broking house officials weren’t.

“From the day’s developments it appears that SEBI wants to make FII entry easier and faster. The proposals are good for the markets and many hedge funds may enter. Some slowdown in fund inflows will take place as the proposals will affect 40% of foreign funds. The inflows were getting too aggressive and SEBI move will bring some sanity to the situation. This is the right time to make such a move. KYC norms are very important as we need to know who is the beneficiary,” UTI Securities head of equities Milind Pradhan said.

Source: Times of India