Sebi to meet FIIs on cash trade margins

The Securities and Exchange Board of India (Sebi) will hold a meeting with foreign institutional investors (FIIs) and custodians to discuss trade margins to be levied on institutional trade from April 21.

"Foreign Institutional Investors and custodians have requested a meeting with us. We will certainly meet all institutions, which have any difficulty, as we go along," Sebi chairman C B Bhave said.

He was speaking at a workshop jointly organised by the Hong Kong Stock Exchange, IL&FS and NSE on 'Financial sector co-operation between India and Hong-Kong'.

Currently, institutional trades in the cash market are exempt from margins. But according to the March 20 Sebi circular, institutional investors will need to pay margins from April 21, 2008, on a T+1 basis.

The margins will be collected from the custodian upon confirmation of trade. "Subsequently, with effect from June 16, 2008, the collection of margins will move to an upfront basis," said the circular.

Institutional investors had raised a hue and cry over payment of upfront margins. Reason: institutional investors will now need to maintain deposits with brokers which will expose them to counter-party risks. FIIs will also have to bear the foreign exchange risk.

The margining system and forex concerns may make the process operationally difficult and prone to the risk of non-funding by the end client.

Also, it may happen that FIIs are unable to fund margins adequately on T+1 primarily due to limited availability of forex market and different time zones, considering that the global custodian acts as the link between the FII and the local sub-custodian.

Recent media reports have suggested that Sebi may allow institutional securities, which are lying with custodians, to meet margin requirements.

Bhave confirmed that the proposed short-selling by institutions will begin from April 21 and that the mechanism was in place to ensure it.

Cross-border listing
Sebi will also take inputs from companies on cross-border listing and will try to smoothen this process, Bhave said.

"It is our belief that companies which are listed abroad should be interested in Indian markets. It should be our effort to see that the listing can be facilitated. Similarly, Indian companies having operations in other countries would be interested in listing abroad as well," he said.

Sebi will consider issues and suggestions raised at the workshop on Indian depositary receipts (IDRs). "So far, Sebi has not got any response on IDRs despite the regulation being out," Bhave said, adding that he expected cross-border fund flows in Asia to go up.