on participatory notes and the regulator's plan for revising the initial public offer process What is the ultimate objective of the modified guidelines on participatory notes?
The basic idea is to provide a cleaner environment for investors to trade in the Indian equity markets as well as protecting the interest of small investors.
There is no bar on any type of foreign investors, but a regulator has to look at the quality of funds and nature of deals.
We want to provide for the average Indian investor and keep the Indian economy as a system that is stable and safe. We do not intend restricting the inflow over a long period of time. There is no capping; there is no ban on P-notes.
The Joint Parliamentary Committee had recommended banning P-notes in 2001. Why did you act on it now?
As former RBI Governor S S Tarapore said the other day, "The best time to repair the roof is when the sun shines." We thought the time is opportune to address the issue.
How will you widen the foreign investor base?
Sebi is planning two specific measures. Investors not regulated in their home country may also be registered as FIIs provided they give regulatory comfort about the nature of funds and the kind of investments made in India.
We may waive the requirement that entities need to be regulated in their home country for being registered as an FII in India.
We may also allow foreign individuals with an investment kitty of over $50 million to operate as sub-accounts to invest in the Indian equity market. Among other things under review is the one-year track record of the foreign entity for getting registered as an FII.
Is there a need to examine the IPO rules to facilitate better price discovery?
The primary markets committee of Sebi is already doing a comprehensive review of the IPO process. It will include scrutiny of every detail such as pricing, allotment quotas to various categories of investors, documentation etc.
For example, for better price discovery, various options are being considered: whether we could have auction for institutional investors and book building/fixed price band for retail investors.
Another option could be auction for everybody. Similarly, is there a case for revisiting the quotas for various investors in an IPO? Based on the report of the primary markets committee, a decision could be taken.
What else needs to be done for promoting the corporate bonds market?
Sebi has already taken a lot of initiatives to develop the corporate bonds market. The steps taken are in the website for feedback.
There are other things like introducing repo and reverse repo for corporate bonds. Stamp duty is another issue. However, these issues need to be addressed either by the RBI or the government.
Are you planning to offer more hedging instruments to market players?
We have already set up a committee to review the derivatives market. The committee members are in constant touch with the market players for feedback.
The review includes the type of instruments, need for increasing the tenure of the contract, lot size of the contracts etc. The entire process will have to be done with urgency, going by the volumes in the derivatives market.
The idea is to have simple hedging instruments, which could be easily understood by both institutional as well as retail investors.
Under the current norms, delisting is triggered the moment a company's floating stock touches 10 per cent. A lot of these scrips are witnessing huge volatility if their floating stock is just a shade above 10 per cent.
The 90:10 companies have to follow a lot of stringent guidelines before they get an exemption from the usual norms of listing of 25 per cent of shares. But their market capitalisation ensures that even a little above 10 per cent amounts to a substantial volume of shares.
However, as a long-term plan, every company, including the 90:10 category, will have to eventually graduate to 75:25. But it will take time.
