Sebi lines up reforms for deeper markets, to check black money
Capital markets regulator Sebi will soon put in place stricter norms to check any flow of black money into stock market though controversy-ridden P-Notes and also initiate steps for allowing mutual fund investments through e-wallets.
Besides, Sebi will consider this week new norms for allowing options trading in commodity derivative market, while rules would be relaxed for registration of foreign investors and for common license to brokers to deal in equities and commodities, sources said.
The board of the regulatory authority will meet on Wednesday here which would be its first meeting under chairmanship of Ajay Tyagi, who took charge as the Securities and Exchange Board of India (Sebi) Chairman on March 1.
Among a slew of reform measures, the Sebi board will also consider making it easier for banks and financial institutions to get shares of the companies they have exposure to by way of conversion of loan into equity -- a move seen as a major boost to the steps for handling the bad loan menace.
The Sebi board will also take stock of long-pending investigations and cases, involving some big corporates, and will consider putting in place an internal guidance note for dealing with quasi-judicial matters.
Besides, it would also discuss the implementation of graded surveillance measures by the stock exchanges to check any manipulation of share price.
In the run up to his first meeting as Chairman, Tyagi has been meeting various groups of stakeholders in the capital markets and some of these interactions are scheduled even on Monday, through which he is looking to get a first-hand understanding of the issues faced in the marketplace and the expectations from the regulator.
In one of the major areas of importance, Sebi will consider new guidelines for dealing with offshore derivative instruments, commonly known as participatory notes (P-Notes), which have been long seen as being possibly misused for routing of black money from abroad.
While Sebi has tightened its norms repeatedly over the recent years to check any loophole, the government now wants the regulator to explicitly impose restrictions on resident Indians and NRIs from being 'beneficiary owners' of these instruments.
While Sebi has already put in place a mechanism for such restrictions, there was a view that the existing restriction are only in form of 'FAQs' of the norms and therefore the Finance Ministry has asked the regulator to impose this restriction through an amendment to the FPI (Foreign Portfolio Investment) Regulations in order to give greater legal sanctity. Following Sebi's measures to check any misuse of P-Notes, the notional value of these instruments has declined over the years from 55.7 per cent of overall FPI investments in June 2007 to just 6.7 per cent in December 2016.
In recent months, the P-Note investments have fallen further, though there was a surprise uptick in the month of March – presumably due to it being the last month for availing of certain tax benefits for investments coming through some major offshore investment gateways.
There are also fears that the P-Note investments may start coming from other jurisdictions like the US, France and the Netherlands after tightening of rules for inflows from countries like Mauritius, Singapore and Cyprus.
Financial literacy must to get investors into markets: Tyagi
Financial awareness, and not tax incentives, is required to bring in more investors into the capital markets, SEBI Chairman Ajay Tyagi said on Sunday. "People should be (financially) aware. To take everyone along and to help them understand the potential of the market is a big task," he said. Tyagi was speaking at a function organised at the National Institute of Securities Markets (NISM) campus at Patalganga near Navi Mumbai.
"Some people say to get people invest into capital markets, there should be some support in terms of tax. I don't support this," he added. Noting that it is crucial to spread financial literacy across the country, the senior IAS officer said, "India is a huge country and if there is participation only from some areas then something is not correct." He said people across the country should invest in the capital markets, and not just those from Mumbai and Ahmedabad.
Pointing to a SEBI survey where investors thought derivatives are a safer instrument than bonds, the SEBI chief said the finding was disturbing. "The capital market are booming but if only some people participate in them, then it is unfair and wrong," said Tyagi, who took over as the SEBI chairman last month. The function was organised to felicitate the winners of National Financial Literacy Assessment Tests. NFLAT is conducted across the country for school students. So far, nearly five lakh students have taken the NFLAT since its inception.