SEBI sets up panel to unify foreign investment guidelines

Market regulator SEBI Wednesday said it has set up a committee under former Cabinet Secretary K M Chandrashekhar to standardise and unify the rules regarding foreign investments made under various routes into the capital markets.

Updated: Dec 12, 2012, 19:57 PM IST

Mumbai: Market regulator SEBI Wednesday said it has set up a committee under former Cabinet Secretary K M Chandrashekhar to standardise and unify the rules regarding foreign investments made under various routes into the capital markets.

The Chandrashekhar committee will simplify and standardise the norms regarding investments into the capital markets by all overseas entities such as foreign institutional investors, foreign venture capital investors (FVCIs), qualified financial/ institutional investors (QFIs) and NRIs, and also to strengthen surveillance over them.

"Why should we have various routes/rules for foreign investors? Why should we have sub-accounts, ODIs, FIIs and QFIs and NRIs and all that?

"In consultation with government, we have decided to combine these various routes which are present today into one single route. And three-four days ago, we set up a committee under former Cabinet secretary K M Chandrashekhar to look into this," SEBI Chairman Upendra Kumar Sinha told reporters here on the sidelines of a capital markets summit organised by the industry body CII.

However, the SEBI chief did not share more details like when the committee will submit its report and who are the other members of the panel.

"QFI inflows have not begun in any meaningful manner. FIIs feel KYC norms are too stringent. Most of the issues have been resolved except for the issue of requirement of PAN (permanent account number for income tax) cards for QFI investments. The government has to tackle that.

"But in consultation with the government, SEBI has set up a committee to bring all foreign investments under a single route," Sinha said.

Earlier, after the October 6 board meeting, SEBI had said, "With a view to rationalise/harmonise different routes for foreign portfolio investments, SEBI will prepare draft guidelines based on the guidance of the working group on foreign investments, for consideration of the government so that uniform guidelines are made for various categories of investors such as FIIs, FVCIs, NRIs, QFIs etc."

Sinha also said that the guidelines to prevent flash crash in the market such as the one that happened on the NSE on October 5 will be in place within a few days.

"I expect the final guidelines to safeguard the interests of investors due to flash crashes in a few days," he said.

On October 5, there was a 900-point flash crash of the NSE benchmark Nifty which wiped out nearly Rs 10 trillion of investor wealth. The trading was halted for about 15 minutes.

SEBI had ordered a probe into the incident and the report is awaited.

NSE claimed there was no technical glitch in its system and blamed the crash on erroneous orders worth over Rs 650 crore for multiple trades by broker Emkay Global in various stocks on behalf of an "institutional client."

Overall, FIIs are the largest players in the domestic market. So far this year, they have pumped in a whopping USD 21 billion into the domestic equities, the second best inflow after 2010, when they had pumped in over USD 29 billion.

On the back of robust fund flows, the BSE 30-stock benchmark, Sensex, has rallied over 25 percent.

Sinha also advised the corporates to re-align their expectations from the market and make use of the available infrastructure for the revival of the market.

The SEBI chief urged corporates to focus more on compliance and strengthen their internal control systems.

Expressing concern over the decline in capital raising activities in the primary markets, Sinha said there was a need for winning back the trust of investors, particularly retail investors.

Between 2009 and now, as many Rs 60,000 crore worth of IPOs were called off even after getting the SEBI approvals, presumably owing to market conditions.

Sinha said it has necessitated regulator's intervention and examination of the deep-rooted causes.

On increasing domestic institutional investors' participation in the pension funds and into the capital market, Sinha said corporates should pro-actively offer inflation-adjusted return to their employees through NPS or otherwise instead of waiting for the Government to institute reforms.

Sinha said that instead of waiting for the passage of the Pension Reforms Bill, corporates should work around current constraints by working independently with employees excluded under current pension norms.

"Any employee earning more than Rs 6,500 a month is exempt. There is no change in the laws required for this. But you have to work hard with these employees to get this money into circulation," he advised corporates.

On various measures taken by SEBI on disclosure norms, Sinha said that there has been a decline in volatility after the implementation of these measures, which bodes well for the capital markets, and more particularly for the equity market.