The Securities and Exchange Board of India (Sebi) has been asked to draw up specific norms to allow foreign institutional investors (FIIs) to participate in the derivatives market.
The high-level committee on capital markets (HLCCM) which met today has decided that the Sebi norms will include the exposure limit and cash volumes that FIIs will need to satisfy to be eligible to invest in the derivatives market. Briefing reporters, J Bhagwati, Joint Secretary(capital markets) in the ministry of finance said the meeting, chaired by the Reserve Bank of India governor Bimal Jalan, also discussed the hedging limits that FIIs should be allowed but could not come to any decision today.
The HLCCM is the apex body on capital markets issues. It includes besides Jalan, finance secretary C M Vasudev, Irda chairman N Rangachary and advisor to finance minister Rakesh Mohan.
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It meets to decide on subjects on which there is a clash of interests among the regulatory bodies including the finance ministry.
Bhagwati said Sebi will also inform the RBI subsequently as the apex bank has the overall responsibility of administering the Foreign Exchange Management Act under which guides the foreign exchange operations of FIIs.
In today's meeting the HLCCM also arrived at a "consensus to revise the existing investment norms for overseas corporate bodies," Bhagwati said. He, however, refused to spell out the details except for saying that "Portfolio investment scheme route of OCBs was the issue." He said the capital markets regulator, RBI and the finance ministry will come out with the necessary regulations soon.
He said the OCB route will however not be scrapped. It is expected that the government will debar the OCBs from participating in the secondary markets through the portfolio investment scheme of RBI which they were eligible on the same terms as NRIs. Instead, the OCBs will be treated on par with FIIs with the same capital adequacy norms for investing in markets. The HLCCM had taken up the issue in the wake of the March stock market scam where it was pointed out that several OCBs had misused the PIS route.
Bhagwati also said the committee under Jalan looked at the prospect of operationalising the two-way limited fungibility of ADRs and GDRs. But he said due to paucity of time the committee could not come to any final decision. He said the issue is one of monitoring the sectoral caps of foreign direct investment which will fluctuate once fungibility of ADR\GDR is allowed. The government has to decide who will be responsible for monitoring the limit.