The Hindu Business Line : Sub-accounts get 1 week to register as FIIs

No for opacity
SEBI did not indefinitely want a market having elements of non transparency.
Those that want to convert from sub-accounts to FIIs will only pay the differential registration charges.

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Mumbai, Oct. 22 Proprietary sub-accounts (through which FIIs handle P-notes) wishing to apply for FII status must send SEBI their letter of intent within 24 hours indicating their intent to convert. The application itself must be submitted within a week’s time, said the SEBI Chairman, Mr M. Damodaran, at a televised videoconference on Monday.

Although SEBI will go ahead with its proposed restrictions on FII investments through participatory notes, P-Notes as instrument are here to stay, provided the anonymity behind them is lifted.

The responses that SEBI has on board are adequate for taking the process forward, said Mr Damodaran.

For several months now, the Chairman and his colleagues at SEBI have been inviting investors (FII sub-accounts) to come “directly through the front door as FIIs.”

“The response has been less than lukewarm until a short while ago,” said Mr Damodaran.

RATIONALE

SEBI’s understanding was that, “there is a large body of investors that either finds this route attractive in terms of the flexibility it offers, some in terms of the lack of transparency that it offers, and some in a combination of both these.”

SEBI did not indefinitely want a market having elements of non transparency, he said. SEBI wants a situation where it knows who is in the market, and the quality of money that comes into the market, he said.

“We envisage a situation where, at least for sometime going forward, there will be participatory notes in the Indian market, but we will ensure that we know to whom it is issued, and that it is an entity we have no discomfort with. That is the broad roadmap.”

He emphasised that “no matter what our discomfort with some categories of participatory notes that have been issued by the market, the instrument is here to stay. It’s not going away tomorrow, or next year, or a few years from now. The instrument will be around until everyone is enabled to come directly into the Indian market and does not need an instrument of that kind. That is a matter of larger policy.”

Currently, there is no limit to the number of sub-accounts that may register for FII status, he said. As of now, SEBI is comfortable with the numbers, at present 3000-plus. “I do not envisage that all of them will convert,” said the Chairman.

However, those that want to convert from sub-accounts to FIIs will only pay the differential registration charges, he said.

The SEBI board will meet on October 25 to finalise the proposals of last week.

FII RESPONSE

Some FII representatives said their meeting with SEBI “went well,” but would not elaborate further. One of them, emerging from the SEBI meeting said: “Nothing new has come out of the meeting, just a few points were clarified. The proposals appear likely to prevail in their current form.”