FIIs troubled by Sebi registration hurdles?

Nifty BSE | NSE 25/05/12 Are Mutual Funds betting on Nifty?

Around 120 foreign institutional investors or FIIs have been granted registrations this year. And Sebi is working towards having a quicker and more efficient system for this process. But FIIs don't seem to think that is the right answer to their woes, reports CNBC-TV18.

 

Finance Minister P Chidambaram tried convincing foreign investors, two days after Sebi proposed banning P-notes with derivatives as the underlying instrument, restricting sub-accounts from issuing P-notes and capping the issuance of P-notes by FIIs. It is a clampdown on P-notes and a definite push on investing directly by registering with Indian regulator Sebi. But how easy is it to get that registration?

 

"I will ask Sebi to call a meeting with the potential FII and ask for suggestions of how the process of registration can be made simpler," said P Chidambaram.

 

Sebi's rules say registered FIIs have to be institutions or regulated asset managers or advisers of funds and have a track record of at least one year. Experts say, that the last condition is the clincher for many new funds. These funds have been floated recently and they have entered India through P-notes.

 

Besides, some of the new funds have had a long term lock-in period, but a track record of less than a year! And the problem only gets larger. If these funds are not floated by associates of existing FIIs, they cannot register as sub-accounts, because they do not have an administrative relationship with the parent FII.

 

"At least for a year, Sebi has been concerned about the fact that there has been name lending in the past and it wants a genuine relationship between the FII and the sub accounts. Therefore, name lending is an issue today. As I said, unless Sebi takes a view on the matter, these funds will be in trouble," said Tushar Sachdev , Executive Director, PwC .

 

For these funds, hope is the only way out. They hope Sebi would take a softer stance on the draft proposal, before it finally becomes a rule. Hence, many of them and their legal advisers are expected to have a dialogue with the regulator on this matter on Monday.