SEBI bars 197 FIIs,342 sub-accounts from fresh trading

Even as foreign institutional investors (FIIs) stepped up purchases in Indian markets,the Securities and Exchange Board of India (SEBI) has barred 197 foreign funds,including those managed by global financial conglomerates like HSBC,Deutsche Bank and Standard Chartered,and 342 sub-accounts from further trading in the stock market. These entities have been barred from fresh trading with immediate effect for non-disclosure of holding structure to the regulator,SEBI said in a circular. “With effect from October 1,2010,FIIs and sub-accounts that have not complied with the above mentioned requirements will not be permitted to take fresh positions in cash and derivatives market while they can retain their current positions or sell off/ unwind,” SEBI said. As many as 1,726 FIIs and 5,529 sub-accounts are registered with the Sebi as on October 1,2010. Funds of Citicorp Trustee Company,Standard Chartered,ABN Amro Bank and Bank of New York are among the entities that have been banned from taking fresh positions in the market. Also sub-accounts of Aberdeen Asset and Abhudhabi Investment Authority were among the 342 non-compliant sub-accounts. Earlier in April,SEBI had sought detailed information from FIIs on their holding structures and account holders,in a move apparently aimed at curbing routing of Indian money back into the country through overseas entities in order to avoid paying taxes. SEBI had asked the FIIs to disclose by September 30,whether it is a protected cell company (PCC),segregated portfolio company (SPC) or multi-class share vehicle (MCV) satisfying broad-based criteria set by the market watchdog. “The move is aimed at preventing money laundering and round-tripping,besides identifying the ultimate beneficiary to whom the securities of Indian firms are issued. If an entity is structured as MCV or is maintaining a segregated portfolio for separate classes of shares,each class should ensure that they are broad-based in nature,” said a market source. The decision came after Sebi banned Societe General and Barclays Bank from issuing fresh offshore derivative instruments (ODI) where it concealed the name of Pluri Capital,an entity incorporated in Mauritius. Pluri was the end beneficiary in both cases,where the ODI was issued with the shares of RComm as the underlying. While all entities seeking FII registration with effect from April 7,2010 were asked to furnish these additional details,existing FIIs and sub-accounts have been given time till September 30,2010 to disclose their structures. “Towards the later part of last year,we noticed SEBI scrutinising applications for granting registration to fund vehicles structured as MCVs and their applications were put on hold by SEBI. Later SEBI started granting registration to fund vehicles structured as MCVs,however,subject to certain restrictions,” said a legal firm.