There should be either joint monitoring of foreign portfolio investors’ limits in stocks (where these limits are close to being breached) by the RBI and SEBI during trading hours, with any conflict between the regulators being tackled by a third party, such as the Financial Sector Development Council (FSDC), according to legal experts. They were citing the case of the HDFC Bank scrip, where the RBI acted during intraday trading to restore the 74 per cent FPI limit after foreign buyers aggressively went long in the scrip in mid-February.

Tejesh Chitlangi, Partner, IC Legal, said. “The violation was an operational issue within the existing insufficient legal framework, which has certain loopholes in monitoring of limits and dissemination of information on real-time basis. The policy framework needs to be strengthened by ensuring real-time coordination between custodians, depositories, stock exchanges and RBI and automated blockage of trades in case limits are reached and immediate notification to that effect. With heightened technological advancement, this should be achievable.”

Echoing the sentiment, Sumit Agrawal, Partner, Suvan Law Advisors & former official of SEBI, said, “Even in the case of trade misfire, once the trade has been executed on the platform of the stock exchange, the RBI cancelling it is perhaps a regulatory oversight. There has to be joint online surveillance mechanisms between the RBI and SEBI, which is missing today. SEBI is fair in seeking non-interference in the sanctity of trades on the exchange platform. Such issues need to be taken to FSDC.”

Damage control exercise

Experts feel that the RBI had to no option but to intervene during intraday trading as it was the regulator primarily responsible for fixing and monitoring FPI limits.

“From an RBI perspective, it was a damage control exercise, since a delayed notification post close of market hours would have resulted in more brokers punching in trades, which later they would have been required to take in their own proprietary books. Since the RBI is the primary regulator as far as prescribing and monitoring the FPI limits are concerned, it had to act swiftly,” concluded Chitlangi.