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New Delhi, June 3 The Finance Ministry on Tuesday said that allegations made by the AIADMK General Secretary, Ms Jayalalithaa, on foreign institutional investors’ (FII) regime, movement of stock market indices and Participatory Notes were “totally baseless” and reflects a complete lack of understanding of the FII regime that was in force in the country.

Responding to a news item appearing in a section of the press, the Finance Ministry has said in a statement that Ms Jayalalithaa’s allegation that investments through PNs are “believed to be largely responsible for the sudden and unexplained fluctuations in the stock market indices” betrays a total lack of understanding of both PNs and the movements in the stock market.

The movement in stock market indices is a function of the investor’s perception of the economy or of a sector or of index stocks. The movement is also influenced by domestic and international events, market sentiments, level of floating stock available, corporate performance and prospects of future economic growth, the Finance Ministry statement added.

The statement highlighted that FIIs are regulated entities, SEBI being the regulator. It is also pointed out that PNs are market instruments that are created and traded overseas. Hence, the Central Government cannot ban or control the issue of PNs; they can only be regulated, and they are indeed being regulated by SEBI.

When a PN is traded on an overseas exchange, the regulator in that jurisdiction would be the authority to regulate that trade. It may be recalled that, in October 2007, SEBI took certain measures to further regulate the issue of PNs.

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