Government today said lending of stocks by FIIs to overseas entities, a transaction equivalent to short-selling, is likely to stop in the next few days following directions from market regulator Sebi.
"Sebi has told them (FIIs) now that it disapproves of lending to offshore entities, and asked them to reverse those transactions.
I am told that those transactions are likely to be reversed over the next few days," Finance Minister P Chidambaram told reporters here.
He said the market regulator has found this use of window by FIIs inappropriate and is addressing the issue.
Earlier this week, Sebi had said it disapproved stock lending of FIIs to overseas entities and warned of stronger action against such practice, if so needed.
"SEBI disapproves of the overseas lending/borrowing activity of FIls and the consequent selling pressure in the cash market in India.
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Sebi has communicated its disapproval to FIls.
The lending/borrowing activity of FIls is being monitored and if necessary stronger measures will be taken by Sebi as considered appropriate," the market regulator had said.
Sebi had asked custodians to communicate to their Foreign Institutional Investors (FIIs) the disapproval of Sebi in this regard.
Sebi had last week asked FIIs and their agents to provide information on the quantity of participatory notes they have issued to overseas entities which could be used like short sale.