SEBI has removed the 40% limit on P-Notes and has allowed certaininstitutions to hold 15% stake in exchanges. Capital market regulator, Securities & Exchange Board of India (SEBI) hasannounced some major reviews in its policies and new initiatives today. Ithas announced the removal of restrictions on the FII holding inParticipatory Notes. It has also announced policy measure to encourage SME Exchange and has allowed specific institutions to increase their stake instock exchanges.Relaxation In P-Notes Norms In a move aimed at easing foreign fund flow into the Indian stock markets,capital market regulator SEBI has removed the cap on overseas fund flowthrough offshore derivative instruments. Earlier, in the wake of excessiveliquidity in the stock markets, foreign institutional investors (FIIs) werebarred from owning more than 40% of their assets in P-notes(which areoffshore derivative instruments-- ODIs) and were asked to unwind theirholdings in India to comply with the cap within 18 months (which would haveexpired in March 2009). P-notes are financial instruments issued by FIIs to unregistered overseasinvestors who cannot directly invest in equity market. SEBI had imposed thecap one year back and had met with stiff resistance from investors. The proposal which was disclosed on October 16, 2007 led to a free fall withSensex losing 1,700 points in early trade on October 17 last year. Themarkets later recovered on positive statements from the finance minister andwent on to hit its all-time high in January 2008. "A lot has changed since the restrictions on PNs were imposed," said SEBIChief CB Bhave today. The SEBI chief also added that he will keep a watch onglobal markets before reviewing norms. He also added that SEBI is notlooking at emulating the short sales ban which has been imposed in othermarkets. The latest move by SEBI could give a much needed fillip to the Indian stockmarkets. The benchmark market index Sensex, was down by 724 points andclosed at 11,801 today, its lowest level since September 2006. SEBI has also said that it needs to review the structure of FII norms andunnecessary curbs need to be removed. However, there is a big question markwhether these changes would lead to fresh fund flow from institutions intoIndia. This is because global institutional funds have been pulling out ofIndia and also other emerging markets owing to the global credit crisiswhich has led to big fund houses declaring bankruptcy or sell-offs. As per a VCCircle analysis US fund houses have been on a selling spree whilethe European funds were buying in India. But over the last one week evenEuropean banks have started revealing their soft underbelly which couldshrink fund flow from Europe as well going forward. In that case the easingof norms related to P-notes may not lead to any major inflows.
Raising Holding Limit In Stock Exchanges
SEBI has allowed certain categories of institutions to increase theirholding in stock exchages from the present 5% limit. The SEBI Board hasdecided to enhance this limit from 5% to 15% in respect of six categories ofshareholders, namely, public financial institutions, stock exchanges,depositories, clearing corporations, banks and insurance companies.The move is likely to increse the competition among the bourses in India andcould see foriegn stock exchanges (New York Stock Exchange, Deutsche Borseand Singapore Exchange) who hold stakes in Indian exchanges increase theirstakes. It can also lead promotion of new exchanges as the new entitieswould have much more control in these exchanges and would be much moreinterested in development of these exchanges.
SME ExchangeSEBI has also moved forward with its intention of forming SME exchange/s.The statement issued by the regulator said that - "In recognition of theneed for making finance available to needy small and medium enterprises, theBoard decided to encourage promotion of dedicated exchanges and/or dedicatedplatforms of the exchanges for listing and trading of securities issued bySMEs. Multiple exchanges or platforms would provide the necessarycompetition in this space."This is a change in stance from SEBI from when Damodaran was heading SEBI.Then SEBI had announced that only a single SME Exchange would be set up incontarast to the recommendation of multiple exchanges now. SEBI plans to come up with a framework for recognition and supervision ofsuch exchanges/platforms. The statement also added that the enterprises witha post issue paid up capital of upto Rs. 25 crore would be listed on suchexchanges / platforms and trading lot would be Rs 1 lakh. The minimum ticketsize for transactions on the SME exchange would ensure that only highnetworth individuals were eligible, so that uninformed investors losemoney.
Bombay Stock Exchange had earlier launched a separate trading platform'IndoNext' for SMEs that did not work so well.
Raising Holding Limit In Stock Exchanges
SEBI has allowed certain categories of institutions to increase theirholding in stock exchages from the present 5% limit. The SEBI Board hasdecided to enhance this limit from 5% to 15% in respect of six categories ofshareholders, namely, public financial institutions, stock exchanges,depositories, clearing corporations, banks and insurance companies.The move is likely to increse the competition among the bourses in India andcould see foriegn stock exchanges (New York Stock Exchange, Deutsche Borseand Singapore Exchange) who hold stakes in Indian exchanges increase theirstakes. It can also lead promotion of new exchanges as the new entitieswould have much more control in these exchanges and would be much moreinterested in development of these exchanges.
SME ExchangeSEBI has also moved forward with its intention of forming SME exchange/s.The statement issued by the regulator said that - "In recognition of theneed for making finance available to needy small and medium enterprises, theBoard decided to encourage promotion of dedicated exchanges and/or dedicatedplatforms of the exchanges for listing and trading of securities issued bySMEs. Multiple exchanges or platforms would provide the necessarycompetition in this space."This is a change in stance from SEBI from when Damodaran was heading SEBI.Then SEBI had announced that only a single SME Exchange would be set up incontarast to the recommendation of multiple exchanges now. SEBI plans to come up with a framework for recognition and supervision ofsuch exchanges/platforms. The statement also added that the enterprises witha post issue paid up capital of upto Rs. 25 crore would be listed on suchexchanges / platforms and trading lot would be Rs 1 lakh. The minimum ticketsize for transactions on the SME exchange would ensure that only highnetworth individuals were eligible, so that uninformed investors losemoney.
Bombay Stock Exchange had earlier launched a separate trading platform'IndoNext' for SMEs that did not work so well.