Joydeep Ghosh & Ashish Rukhaiyar
Mumbai March 09, 2011
The Securities and Exchange Board of India’s (Sebi) letter to lead managers to stop enlisting 10 broking houses for future public issues has stumped the broking community.
Sebi’s February letter to six lead managers said the broking houses — referred as sub-syndicate members — which were unable to compensate investors who had not received Coal India shares despite legitimate bidding should not be enlisted for forthcoming public issues, till the matter is resolved.
The Rs 15,200-crore initial public offering (IPO) of Coal India (CIL) was managed by six investment bankers — Citigroup, Deutsche Equities, DSP Merrill Lynch, Enam Securities, Kotak Mahindra Capital and Morgan Stanley India.
Yesterday, the lead managers met Sebi officials to raise important issues on how to resolve this deadlock. With just about a month to go before ONGC’s IPOs of around Rs 14,000 crore is supposed to hit the market, top brokers obviously want things to be resolved fast.
Over 10,000 investors were unable to participate in the CIL issue in spite of submitting legitimate forms. Brokers blamed it on technical glitches, but Sebi has asked them to compensate the investors. According to industry officials, average amount per investor could be Rs 12,000 to 15,000, depending on the application size. That is, 10 top brokers have to pay a compensation of Rs 10-15 crore.
The amount per se is not an issue. But paying all consumers is. “We have been working on this for the last two months and paid 50 per cent of the investors. But there are some issues that we are trying to resolve through the lead managers with the market regulators,” said the president of a leading broking house.
One of the main problem is that though applications might be from one broker, the investor might have submitted with another. “According to Sebi mandate, I need to compensate such investors as well. I am willing to pay customers where I have defaulted, but how can I pay others who have my form but have deposited it with another broker,” said another head of a broking house. Consequently, many have approached the investors but making payment, according to an acknowledgement slip.
Another issue causing worry is that this compensation for default does not have a precedent. Sebi’s order comes despite a disclaimer in the offer document which says “neither our company, the selling shareholder nor any member of the syndicate is liable to the bidders for any failure in downloading the bids due to faults in any software/hardware system or otherwise.”
Investment banks and broking houses feel such compensation policies will hurt the industry in future. Most retail investors come in with applications at the last moment after taking into account the institutional investor’s response to the issue.
“When applications are being uploaded till 12-1 in the night, there could be genuine mistakes,” said IPO head of an investment bank. Some investment bankers felt this issue could be resolved in 10-15 days. “We have been working on a war footing for sometime. But it is difficult to achieve 100 per cent success,” said the president of a broking house.
Tech solution
Sebi is in the process of modifying the online bidding mechanism that would reduce instances of brokers unable to upload bid details. Stock exchanges will soon provide stock brokers with an access to the online ASBA (Application Supported by Blocked Amount) mechanism wherein brokers will be able to key in the important details of the applicant including, demat account number, bank account number (where money will remain blocked) and the bid details.
Thereafter, banks that have access to the system will verify the account details and block the amount. This, according to market players, will drastically reduce the workload on syndicate members. Currently, all that a broker can do is collect ASBA form from the investor and deposit it physically at the bank where the investor has his account.
Wednesday 9 March 2011
Sebi to review SME norms
Ashish Rukhaiyar
Mumbai March 2, 2011
Investment bankers express concern over market making, trading lot size.
In a clear indication that the Securities and Exchange Board of India (Sebi) wants to launch a separate trading platform for small and medium enterprises (SMEs) as early as possible, the regulator has decided to meet investment bankers to address some of the areas of concern.
It is believed Sebi will tweak some of the guidelines notified for the SME platform to make the segment attractive, especially in the initial period. The regulator is also looking at introducing 15-minute call auction windows at regular intervals through the trading session.
According to persons familiar with the development, the bankers have expressed apprehensions over two key features of regulatory guidelines — compulsory market making for three years and a minimum trading lot size of Rs 100,000. Investment bankers want the regulator to bring down both.
Incidentally, bankers have already discussed these issues with stock exchange representatives in a series of recent meetings.
“We discussed our issues with exchange officials, who have forwarded them to the regulator,” said an investment banker who was part of the discussions. “While there are practical difficulties in three years of market making, a minimum trading lot size of Rs 100,000 will put most of the retail investors out of this segment. This will impact liquidity,” he explained on condition of anonymity.
Representatives of the umbrella body of investment bankers — Association of Merchant Bankers of India (AMBI) — were also part of the discussions.
Another person privy to the developments said while there are some other minor concern areas too, market making has emerged as the key issue.
“There are various views on the role of stock exchanges to popularise this whole new segment,” said a person who wished not to be named. “Enough information needs to be disseminated through their respective websites. Everything else, however, has been dwarfed by the discussions related to market making and (trading) lot size,” he added.
A separate trading platform for SMEs has been on the radar for long, with the initial draft regulations announced in November 2009. The norms were later notified by the regulator in May 2010. The regulator has fixed an after-issue upper limit of Rs 25 crore capital at face value for a company that intends to list in the segment. If a company’s after-issue face value capital is less than Rs 25 crore, a further issue of shares will be allowed, provided the new capital does not exceed Rs 25 crore.
Further, companies listed in the segment will be compulsorily shifted to the main board of the exchange after exceeding the Rs 25-crore after-issue paid-up capital limit. While the issue also needs to be 100 per cent underwritten, investment bankers will have to underwrite 15 per cent of the issue in their own account. Bankers who have the responsibility of market making may be represented on the board of the company, subject to an agreement with the issuer.
Mumbai March 2, 2011
Investment bankers express concern over market making, trading lot size.
In a clear indication that the Securities and Exchange Board of India (Sebi) wants to launch a separate trading platform for small and medium enterprises (SMEs) as early as possible, the regulator has decided to meet investment bankers to address some of the areas of concern.
It is believed Sebi will tweak some of the guidelines notified for the SME platform to make the segment attractive, especially in the initial period. The regulator is also looking at introducing 15-minute call auction windows at regular intervals through the trading session.
According to persons familiar with the development, the bankers have expressed apprehensions over two key features of regulatory guidelines — compulsory market making for three years and a minimum trading lot size of Rs 100,000. Investment bankers want the regulator to bring down both.
Incidentally, bankers have already discussed these issues with stock exchange representatives in a series of recent meetings.
“We discussed our issues with exchange officials, who have forwarded them to the regulator,” said an investment banker who was part of the discussions. “While there are practical difficulties in three years of market making, a minimum trading lot size of Rs 100,000 will put most of the retail investors out of this segment. This will impact liquidity,” he explained on condition of anonymity.
Representatives of the umbrella body of investment bankers — Association of Merchant Bankers of India (AMBI) — were also part of the discussions.
Another person privy to the developments said while there are some other minor concern areas too, market making has emerged as the key issue.
“There are various views on the role of stock exchanges to popularise this whole new segment,” said a person who wished not to be named. “Enough information needs to be disseminated through their respective websites. Everything else, however, has been dwarfed by the discussions related to market making and (trading) lot size,” he added.
A separate trading platform for SMEs has been on the radar for long, with the initial draft regulations announced in November 2009. The norms were later notified by the regulator in May 2010. The regulator has fixed an after-issue upper limit of Rs 25 crore capital at face value for a company that intends to list in the segment. If a company’s after-issue face value capital is less than Rs 25 crore, a further issue of shares will be allowed, provided the new capital does not exceed Rs 25 crore.
Further, companies listed in the segment will be compulsorily shifted to the main board of the exchange after exceeding the Rs 25-crore after-issue paid-up capital limit. While the issue also needs to be 100 per cent underwritten, investment bankers will have to underwrite 15 per cent of the issue in their own account. Bankers who have the responsibility of market making may be represented on the board of the company, subject to an agreement with the issuer.
I-bankers fret as Sebi tells them to reveal track record
Ashish Rukhaiyar
Mumbai February 25, 2011
Investment bankers are disturbed at a discussion paper circulated by the capital markets regulator last year, requiring them to disclose their past track record when they set about a fresh offer document.
Track record in this context is traditionally understood to mean not only the company and its issue size handled in the past by a banking entity, but also the movement of its shares. Investment bankers see no good reason why they should be held responsible for the share price movement after listing. They intend to meet the Securities and Exchange Board of India (Sebi) to discuss this.
“It is proposed that all merchant bankers be directed to disclose the track record,” Sebi said in a discussion paper circulated around November. Sebi feels the record of the investment banker managing the issue would be a good barometer for making investment decisions. The regulator said the disclosure should be made available in the offer document and also on the website of the investment banker. In recent weeks, investment bankers have had a series of meetings on this issue and voiced concern among themselves.
The Association of Merchant Bankers of India (Ambi), their umbrella body, has decided to take up this matter with the regulator.
Indicating what?
Bankers, on condition of anonymity, say while their record would typically be judged in terms of returns generated by the companies that they had taken public, this is not such a simple matter. “One cannot get the correct picture by looking at the issue price and the current market price in isolation,” says the director of an investment banking entity. “How will one judge the returns if the stock doubled after listing and then dropped below the issue price? If one looks at the high, then the issue can be termed good. But the fall thereafter makes it a bad one,” says this banker, also an active member of Ambi.
They note that companies, once listed, are not required to discuss business decisions with their investment bankers. In such a scenario, the performance of the bankers should not be correlated to the stock price.
“I do not agree with this concept, as investment bankers cannot be held responsible for share price movement post-listing,” says Prithvi Haldea of Prime Database. “There are a lot of external factors like decisions taken by the promoters or management, market conditions, sector outlook. A company is under no obligation to consult bankers on decisions that can impact the share price. But, yes, the bankers should be pulled up for wrong disclosures,” says this former member of Sebi’s Primary Market Advisory Committee.
“There is nothing inherently wrong with the company but still the stock could be in doldrums on account of overall negative sentiment in the market. How does one judge performance in such a scenario?” asks another investment banker specialising in mid-sized issues. Investors take a decision based on the company and its outlook and not on the basis of the investment banker, he adds.
Concerns such as these have made bankers apprehensive about this disclosure. They feel if the regulator still wishes to proceed, other checks and balances are needed. Stock returns cannot be the only barometer, they say.
Mumbai February 25, 2011
Investment bankers are disturbed at a discussion paper circulated by the capital markets regulator last year, requiring them to disclose their past track record when they set about a fresh offer document.
Track record in this context is traditionally understood to mean not only the company and its issue size handled in the past by a banking entity, but also the movement of its shares. Investment bankers see no good reason why they should be held responsible for the share price movement after listing. They intend to meet the Securities and Exchange Board of India (Sebi) to discuss this.
“It is proposed that all merchant bankers be directed to disclose the track record,” Sebi said in a discussion paper circulated around November. Sebi feels the record of the investment banker managing the issue would be a good barometer for making investment decisions. The regulator said the disclosure should be made available in the offer document and also on the website of the investment banker. In recent weeks, investment bankers have had a series of meetings on this issue and voiced concern among themselves.
The Association of Merchant Bankers of India (Ambi), their umbrella body, has decided to take up this matter with the regulator.
Indicating what?
Bankers, on condition of anonymity, say while their record would typically be judged in terms of returns generated by the companies that they had taken public, this is not such a simple matter. “One cannot get the correct picture by looking at the issue price and the current market price in isolation,” says the director of an investment banking entity. “How will one judge the returns if the stock doubled after listing and then dropped below the issue price? If one looks at the high, then the issue can be termed good. But the fall thereafter makes it a bad one,” says this banker, also an active member of Ambi.
They note that companies, once listed, are not required to discuss business decisions with their investment bankers. In such a scenario, the performance of the bankers should not be correlated to the stock price.
“I do not agree with this concept, as investment bankers cannot be held responsible for share price movement post-listing,” says Prithvi Haldea of Prime Database. “There are a lot of external factors like decisions taken by the promoters or management, market conditions, sector outlook. A company is under no obligation to consult bankers on decisions that can impact the share price. But, yes, the bankers should be pulled up for wrong disclosures,” says this former member of Sebi’s Primary Market Advisory Committee.
“There is nothing inherently wrong with the company but still the stock could be in doldrums on account of overall negative sentiment in the market. How does one judge performance in such a scenario?” asks another investment banker specialising in mid-sized issues. Investors take a decision based on the company and its outlook and not on the basis of the investment banker, he adds.
Concerns such as these have made bankers apprehensive about this disclosure. They feel if the regulator still wishes to proceed, other checks and balances are needed. Stock returns cannot be the only barometer, they say.
Sebi looks at cash settlement in IRF
Ashish Rukhaiyar
Mumbai February 18, 2011
Sebi-RBI committee looking at ways to boost dwindling volume.
As part of efforts to boost volumes in exchange-traded interest rate futures (IRF), the Securities and Exchange Board of India (Sebi) is evaluating the option of introducing cash settlement in the segment. If approved, it could come as a shot in the arm for the niche market that has been witnessing almost nil volumes for months.
IRF is an exchange-traded derivatives product for hedging interest rate risks. Only the National Stock Exchange (NSE) offers IRFs, which were launched for the first time in 2003.
According to people familiar with the development, the joint technical committee reviewing the guidelines and contract specifications for IRFs is looking at cash settlement as one of the ways to attract more market participants. The committee comprises representatives of Sebi and the Reserve Bank of India (RBI).
“It is believed that the uncertainty over liquidity of the underlying bond is acting as the biggest deterrent for the growth of the IRF market,” said a person privy to the developments. “If cash settlement is allowed, concerns related to dumping of illiquid bonds can be addressed,” he added.
He, however, clarified that nothing had been finalised yet and the technical committee could look at tweaking other features of the segment without switching to cash settlement.
At present, participants can settle contracts with delivery of government (GoI) securities with a tenor between nine and 12 years. The tenor of deliverable grade securities has been fixed between 7.5 years and 15 years.
IRFs are based on a notional 10-year GoI bond, bearing a notional seven per cent interest rate, payable half-yearly. They were launched for the second time in September 2009. But volumes are still negligible. On most days in the recent past, only a single token trade has been executed on NSE.
Incidentally, the regulator has been trying hard to make the IRF segment more market friendly. Another idea that is being discussed is the concept of banks performing the role of market makers to enhance liquidity. Banks are the biggest players in the IRF market and any initiative taken by them is expected to lead to an exponential rise in volumes. Globally, IRF is a huge market with volumes running into trillions of dollars.
With U K Sinha, the new chairman of Sebi assuming office from Friday (February 18), it is expected that the revised guidelines for IRFs will be unveiled soon.
Mumbai February 18, 2011
Sebi-RBI committee looking at ways to boost dwindling volume.
As part of efforts to boost volumes in exchange-traded interest rate futures (IRF), the Securities and Exchange Board of India (Sebi) is evaluating the option of introducing cash settlement in the segment. If approved, it could come as a shot in the arm for the niche market that has been witnessing almost nil volumes for months.
IRF is an exchange-traded derivatives product for hedging interest rate risks. Only the National Stock Exchange (NSE) offers IRFs, which were launched for the first time in 2003.
According to people familiar with the development, the joint technical committee reviewing the guidelines and contract specifications for IRFs is looking at cash settlement as one of the ways to attract more market participants. The committee comprises representatives of Sebi and the Reserve Bank of India (RBI).
“It is believed that the uncertainty over liquidity of the underlying bond is acting as the biggest deterrent for the growth of the IRF market,” said a person privy to the developments. “If cash settlement is allowed, concerns related to dumping of illiquid bonds can be addressed,” he added.
He, however, clarified that nothing had been finalised yet and the technical committee could look at tweaking other features of the segment without switching to cash settlement.
At present, participants can settle contracts with delivery of government (GoI) securities with a tenor between nine and 12 years. The tenor of deliverable grade securities has been fixed between 7.5 years and 15 years.
IRFs are based on a notional 10-year GoI bond, bearing a notional seven per cent interest rate, payable half-yearly. They were launched for the second time in September 2009. But volumes are still negligible. On most days in the recent past, only a single token trade has been executed on NSE.
Incidentally, the regulator has been trying hard to make the IRF segment more market friendly. Another idea that is being discussed is the concept of banks performing the role of market makers to enhance liquidity. Banks are the biggest players in the IRF market and any initiative taken by them is expected to lead to an exponential rise in volumes. Globally, IRF is a huge market with volumes running into trillions of dollars.
With U K Sinha, the new chairman of Sebi assuming office from Friday (February 18), it is expected that the revised guidelines for IRFs will be unveiled soon.
Take 2: Impartiality will be C B Bhave's legacy
Ashish Rukhaiyar
Mumbai February 15, 2011
Chandrasekhar Bhaskar Bhave has always tried to avoid controversy, but that’s something that has followed him like a shadow in the last three years of his professional career. So, as he hangs up his boots as chairman of the Securities & Exchange Board of India (Sebi) on Thursday, he will see ‘controversy’ as a common thread running through his tenure.
Eyebrows were raised when he was moved from the National Securities Depository Ltd (NSDL) to head Sebi. Reason: NSDL was involved in a legal battle with Sebi itself. Although he recused himself from the proceedings, there was a fair amount of flak when Sebi decided to quash the NSDL committee report.
In the last few of months of his tenure, he took on powerful corporate houses – served a second showcause notice on Mukesh Ambani’s Reliance Industries; investigated the Anil Ambani group and gave it a consent order at Rs 50 crore; refused to give permission to Jignesh Shah’s MCX-SX to operate (the matter is in the Bombay High Court). Besides, he consistently made fund raising difficult for Subroto Roy’s Sahara Group.
He courted controversy also when he banned entry load on mutual funds, and took on the Insurance Regulatory and Development Authority (Irda) over unit-linked insurance plans (Ulips). The result: Ulips have become much cheaper. Also, crores of investor money has been saved by the ban on entry load.(Click for table & graph)
Sebi also had a run-in with the Forward Markets Commission (FMC) when it allowed the national Stock Exchange (NSE) to launch futures on gold exchange traded funds (ETFs). FMC managed to stay the launch of the gold-linked product.
Interestingly, during his tenure, the stock market went through an entire cycle. That is, when he took over in February 2008, the Bombay Stock Exchange’s benchmark Sensitive Index, or Sensex, was hovering around 18,000. It is at the same level now. There was a sharp dip to 8,000 and spike to 21,000 over the period.
Given the high volatility, the share of retail investors has fallen sharply during his tenure. In the last three years, their share in total market capitalisation has declined. Even the mid-cap segment, where retail investors’ participation has been traditionally higher, is down 14 per cent. (See table on market performance during his tenure).
But, it was not due to lack of effort from Sebi. The investment limit for retail investors was doubled – from Rs 1 lakh to Rs 2 lakh, application supported by blocked amounts (Asba) was introduced, listing time of initial public offers (IPOs) was reduced, and 100 per cent payment for institutional investors at the time of investing in an IPO was allowed. Despite these measures, investors shied away from the market because of heavy losses incurred in the IPOs after listing.
Among other measures, he extended the validity of the Sebi observation letter to one year, from the three months earlier, thereby giving companies more time to launch IPOs. He also gave companies the flexibility to announce the price band two days before the opening of an issue.
The concept of anchor investors was introduced for public issues. He also fulfilled a long-standing demand of the market by approving physical settlement in the equity derivatives segment. The agenda papers of Sebi board meetings were also made available on the website.
At a time when over-the-counter currency derivatives market commanded a volume in excess of $15 billion, Sebi decided to launch those on the exchange platform, providing transparent pricing and zero counter-party risk. Market participants instantly embraced the new instrument.
Sebi then moved a step forward by allowing futures contracts in euro, yen and pound sterling. The regulator finally topped it by allowing rupee-dollar options. Bhave also tried to infuse fresh life into exchange-traded interest rate futures (IRFs), but failed.
Unfinished agenda
The MCX-SX matter is still pending in the Bombay High Court. It will be interesting to see if there will be any change in the regulator’s stand after the new chairman takes over. The ongoing legal tussle has been marked with allegations against Bhave and some other Sebi officials for favouring NSE.
While Bhave did constitute a panel under former presiding officer of Securities Appellate Tribunal, C Achuthan, to overhaul the country’s takeover regulations, the final decision is yet to be taken. The panel, formed in September 2009, submitted its report in July 2010. The Sebi board has deliberated on the issue in the last two meetings, but chose not to take a decision. Apparently, the government is yet to decide on some of the recommendations proposed by the Achuthan Committee.
Mumbai February 15, 2011
Chandrasekhar Bhaskar Bhave has always tried to avoid controversy, but that’s something that has followed him like a shadow in the last three years of his professional career. So, as he hangs up his boots as chairman of the Securities & Exchange Board of India (Sebi) on Thursday, he will see ‘controversy’ as a common thread running through his tenure.
Eyebrows were raised when he was moved from the National Securities Depository Ltd (NSDL) to head Sebi. Reason: NSDL was involved in a legal battle with Sebi itself. Although he recused himself from the proceedings, there was a fair amount of flak when Sebi decided to quash the NSDL committee report.
In the last few of months of his tenure, he took on powerful corporate houses – served a second showcause notice on Mukesh Ambani’s Reliance Industries; investigated the Anil Ambani group and gave it a consent order at Rs 50 crore; refused to give permission to Jignesh Shah’s MCX-SX to operate (the matter is in the Bombay High Court). Besides, he consistently made fund raising difficult for Subroto Roy’s Sahara Group.
He courted controversy also when he banned entry load on mutual funds, and took on the Insurance Regulatory and Development Authority (Irda) over unit-linked insurance plans (Ulips). The result: Ulips have become much cheaper. Also, crores of investor money has been saved by the ban on entry load.(Click for table & graph)
Sebi also had a run-in with the Forward Markets Commission (FMC) when it allowed the national Stock Exchange (NSE) to launch futures on gold exchange traded funds (ETFs). FMC managed to stay the launch of the gold-linked product.
Interestingly, during his tenure, the stock market went through an entire cycle. That is, when he took over in February 2008, the Bombay Stock Exchange’s benchmark Sensitive Index, or Sensex, was hovering around 18,000. It is at the same level now. There was a sharp dip to 8,000 and spike to 21,000 over the period.
Given the high volatility, the share of retail investors has fallen sharply during his tenure. In the last three years, their share in total market capitalisation has declined. Even the mid-cap segment, where retail investors’ participation has been traditionally higher, is down 14 per cent. (See table on market performance during his tenure).
But, it was not due to lack of effort from Sebi. The investment limit for retail investors was doubled – from Rs 1 lakh to Rs 2 lakh, application supported by blocked amounts (Asba) was introduced, listing time of initial public offers (IPOs) was reduced, and 100 per cent payment for institutional investors at the time of investing in an IPO was allowed. Despite these measures, investors shied away from the market because of heavy losses incurred in the IPOs after listing.
Among other measures, he extended the validity of the Sebi observation letter to one year, from the three months earlier, thereby giving companies more time to launch IPOs. He also gave companies the flexibility to announce the price band two days before the opening of an issue.
The concept of anchor investors was introduced for public issues. He also fulfilled a long-standing demand of the market by approving physical settlement in the equity derivatives segment. The agenda papers of Sebi board meetings were also made available on the website.
At a time when over-the-counter currency derivatives market commanded a volume in excess of $15 billion, Sebi decided to launch those on the exchange platform, providing transparent pricing and zero counter-party risk. Market participants instantly embraced the new instrument.
Sebi then moved a step forward by allowing futures contracts in euro, yen and pound sterling. The regulator finally topped it by allowing rupee-dollar options. Bhave also tried to infuse fresh life into exchange-traded interest rate futures (IRFs), but failed.
Unfinished agenda
The MCX-SX matter is still pending in the Bombay High Court. It will be interesting to see if there will be any change in the regulator’s stand after the new chairman takes over. The ongoing legal tussle has been marked with allegations against Bhave and some other Sebi officials for favouring NSE.
While Bhave did constitute a panel under former presiding officer of Securities Appellate Tribunal, C Achuthan, to overhaul the country’s takeover regulations, the final decision is yet to be taken. The panel, formed in September 2009, submitted its report in July 2010. The Sebi board has deliberated on the issue in the last two meetings, but chose not to take a decision. Apparently, the government is yet to decide on some of the recommendations proposed by the Achuthan Committee.
Newsmaker: U K Sinha
Ashish Rukhaiyar
February 4, 2011
The market regulator's new asset
A few months ago at a glittering mutual fund awards night, the chief executive of an asset management company was asked where he likes to go on vacation. The compere expected an exotic destination like Montreux or Tuscany. Pat came the reply: “My hometown in Bihar”. The answer was classic Upendra Kumar Sinha — simple and forthright. And, yes, he was on the dais to accept one of the many awards on behalf of UTI Mutual Fund.
Sinha is set to don a new hat. Come February 18, he will succeed C B Bhave as the new chairman of the Securities & Exchange Board of India (Sebi). His new office will be only a block away from his current one in Mumbai’s Bandra-Kurla Complex, but the added powers will bring more responsibilities, too.
Even before the 59-year-old industry veteran occupies the spacious eighth-floor room in Sebi’s headquarters, which offers a commanding view of the commercial hub, there is enough speculation about the stance he will take on sensitive matters like an entry-load ban on mutual funds, overhauling of regulations governing corporate takeovers and foreign institutional investors (FIIs), and ownership issues related to stock exchanges.
The disciplined Sinha, however, is not one to be swayed by biased opinions. The 1976-batch IAS officer has seen it all during his stints with the finance ministry, first as joint secretary in the banking division and later with the economic affairs division. People who know Sinha are not surprised when the government entrusts him with vital jobs related to financial markets.
“He has many qualities that will make him an asset to any institution,” says an industry veteran, who has worked with Sinha on a committee on securitisation of bonds. “He is a good listener, thinks logically and does his homework before entering any meeting. As a result, one finds it almost impossible to negate his views. And the biggest plus point is that even the government has faith in him,” he says, requesting not to be named.
The Bihar cadre bureaucrat, who has a degree in law and a master’s degree in physics, may well be a part of the mutual fund industry that has been in perpetual cribbing mode ever since entry loads were banned in 2009. But he is definitely not one among the CEOs sticking their necks out to enhance assets under management. Sinha, however, was one of the most vocal critics when Sebi barred fund houses from charging an entry load.
At a time when most fund houses found innovative ways to attract corporate money to top the monthly charts, Sinha’s UTI MF joined hands with the Bihar government to launch Mukhyamantri Kanya Suraksha Yojana to ensure education for girls. The scheme envisages developing 250 schools exclusively for them. It did not lead to a quantum jump in the assets of UTI MF, but it did work towards the aim for which mutual funds were created in the first place.
Sinha is also credited with the launch of a micro-pension scheme, targeted at low-income groups, which is believed to have attracted more than 2 lakh investors. The scheme has people from the lowest strata of society, including railway porters and dairy farm workers.
At Sebi, Sinha’s working style is not expected to be drastically different from that of Bhave, as both are known to be well versed in the workings of the market and are open to new ideas. While investors will not complain, television journalists tracking Sebi may find the going a bit difficult. Unlike his predecessor, Sinha — he is interested in Urdu poetry, especially the works of Ghalib — is not known to give exciting sound bites that can be played over and over again.
February 4, 2011
The market regulator's new asset
A few months ago at a glittering mutual fund awards night, the chief executive of an asset management company was asked where he likes to go on vacation. The compere expected an exotic destination like Montreux or Tuscany. Pat came the reply: “My hometown in Bihar”. The answer was classic Upendra Kumar Sinha — simple and forthright. And, yes, he was on the dais to accept one of the many awards on behalf of UTI Mutual Fund.
Sinha is set to don a new hat. Come February 18, he will succeed C B Bhave as the new chairman of the Securities & Exchange Board of India (Sebi). His new office will be only a block away from his current one in Mumbai’s Bandra-Kurla Complex, but the added powers will bring more responsibilities, too.
Even before the 59-year-old industry veteran occupies the spacious eighth-floor room in Sebi’s headquarters, which offers a commanding view of the commercial hub, there is enough speculation about the stance he will take on sensitive matters like an entry-load ban on mutual funds, overhauling of regulations governing corporate takeovers and foreign institutional investors (FIIs), and ownership issues related to stock exchanges.
The disciplined Sinha, however, is not one to be swayed by biased opinions. The 1976-batch IAS officer has seen it all during his stints with the finance ministry, first as joint secretary in the banking division and later with the economic affairs division. People who know Sinha are not surprised when the government entrusts him with vital jobs related to financial markets.
“He has many qualities that will make him an asset to any institution,” says an industry veteran, who has worked with Sinha on a committee on securitisation of bonds. “He is a good listener, thinks logically and does his homework before entering any meeting. As a result, one finds it almost impossible to negate his views. And the biggest plus point is that even the government has faith in him,” he says, requesting not to be named.
The Bihar cadre bureaucrat, who has a degree in law and a master’s degree in physics, may well be a part of the mutual fund industry that has been in perpetual cribbing mode ever since entry loads were banned in 2009. But he is definitely not one among the CEOs sticking their necks out to enhance assets under management. Sinha, however, was one of the most vocal critics when Sebi barred fund houses from charging an entry load.
At a time when most fund houses found innovative ways to attract corporate money to top the monthly charts, Sinha’s UTI MF joined hands with the Bihar government to launch Mukhyamantri Kanya Suraksha Yojana to ensure education for girls. The scheme envisages developing 250 schools exclusively for them. It did not lead to a quantum jump in the assets of UTI MF, but it did work towards the aim for which mutual funds were created in the first place.
Sinha is also credited with the launch of a micro-pension scheme, targeted at low-income groups, which is believed to have attracted more than 2 lakh investors. The scheme has people from the lowest strata of society, including railway porters and dairy farm workers.
At Sebi, Sinha’s working style is not expected to be drastically different from that of Bhave, as both are known to be well versed in the workings of the market and are open to new ideas. While investors will not complain, television journalists tracking Sebi may find the going a bit difficult. Unlike his predecessor, Sinha — he is interested in Urdu poetry, especially the works of Ghalib — is not known to give exciting sound bites that can be played over and over again.
Sebi mulls call auction for SME bourse
Ashish Rukhaiyar
Mumbai February 3, 2011
After introducing the call auction mechanism in Sensex and Nifty stocks, the Securities and Exchange Board of India (Sebi) is mulling extending this to the proposed platform for small and medium enterprises (SMEs), although with a few changes. The regulator believes the mechanism will help in price discovery of stocks, especially those that are not much in demand.
People familiar with the development say Sebi is toying with the idea of introducing 15-minute call auction windows at regular intervals. It has proposed this in its discussions with exchanges and other market participants.
Under the mechanism, buy and sell orders are collected over a fixed period and then processed in an auction. The price at which the highest number of orders is placed is chosen. In other words, buy/sell orders are not executed immediately.
“It is believed the (call) auction mechanism will help create liquidity in the SME market, as there could be many stocks for which buy/sell orders are not in large numbers,” said a person privy to the discussions. “The SME platform is different from the main market and one auction session will not suffice. Hence, the idea is to have 15-minute windows throughout the trading session,” he added.
Susan Thomas of Indira Gandhi Institute of Development Research, in a research paper titled, “Call auction: A solution to some difficulties in Indian finance”, said, “Call auction can help deal with issues such as market opening, market closing, extreme news events and can be potentially beneficial for illiquid securities, including bonds.”
The concept is not new to India. Stock exchanges introduced a 15-minute pre-opening call auction session for Sensex and Nifty stocks in October 2010. While the first eight minutes are reserved for order entry, modification and cancellation, the next four minutes are for order matching and trade confirmation. The remaining three minutes is the buffer period to facilitate the transition to the normal market.
Sebi announced the draft guidelines for the SME platform in late 2009. The guidelines called for merchant bankers to perform market-making activities for three years. They also did away with the process of vetting offer documents for listing on the SME segment.
Hence, an investment banker would be responsible for due diligence and filing the prospectus with the market regulator and the exchange. An upper limit of Rs 25 crore paid-up capital has been fixed for a company to list on the segment. The companies will be shifted to the main exchange if they cross the limit. SMEs would be required to submit financial numbers on a half-yearly basis. The minimum IPO size has been pegged at Rs 1 lakh.
Mumbai February 3, 2011
After introducing the call auction mechanism in Sensex and Nifty stocks, the Securities and Exchange Board of India (Sebi) is mulling extending this to the proposed platform for small and medium enterprises (SMEs), although with a few changes. The regulator believes the mechanism will help in price discovery of stocks, especially those that are not much in demand.
People familiar with the development say Sebi is toying with the idea of introducing 15-minute call auction windows at regular intervals. It has proposed this in its discussions with exchanges and other market participants.
Under the mechanism, buy and sell orders are collected over a fixed period and then processed in an auction. The price at which the highest number of orders is placed is chosen. In other words, buy/sell orders are not executed immediately.
“It is believed the (call) auction mechanism will help create liquidity in the SME market, as there could be many stocks for which buy/sell orders are not in large numbers,” said a person privy to the discussions. “The SME platform is different from the main market and one auction session will not suffice. Hence, the idea is to have 15-minute windows throughout the trading session,” he added.
Susan Thomas of Indira Gandhi Institute of Development Research, in a research paper titled, “Call auction: A solution to some difficulties in Indian finance”, said, “Call auction can help deal with issues such as market opening, market closing, extreme news events and can be potentially beneficial for illiquid securities, including bonds.”
The concept is not new to India. Stock exchanges introduced a 15-minute pre-opening call auction session for Sensex and Nifty stocks in October 2010. While the first eight minutes are reserved for order entry, modification and cancellation, the next four minutes are for order matching and trade confirmation. The remaining three minutes is the buffer period to facilitate the transition to the normal market.
Sebi announced the draft guidelines for the SME platform in late 2009. The guidelines called for merchant bankers to perform market-making activities for three years. They also did away with the process of vetting offer documents for listing on the SME segment.
Hence, an investment banker would be responsible for due diligence and filing the prospectus with the market regulator and the exchange. An upper limit of Rs 25 crore paid-up capital has been fixed for a company to list on the segment. The companies will be shifted to the main exchange if they cross the limit. SMEs would be required to submit financial numbers on a half-yearly basis. The minimum IPO size has been pegged at Rs 1 lakh.
Sebi collects over Rs 150 cr through consent orders
Ashish Rukhaiyar
Mumbai February 1, 2011
Nearly 1,000 cases settled; Rs 29 cr recovered as disgorgement fee.
The consent order mechanism has proved to be an effective weapon for the Securities and Exchange Board of India (Sebi), helping the regulator settle nearly 1,000 cases and collect more than Rs 150 crore as settlement charges.
The recent high-profile regulatory action against Anil Ambani-controlled Reliance Infrastructure (R-Infra) and Reliance Natural Resources (RNRL) has, once again, brought to the fore the importance of the mechanism, introduced in 2007.
Consent order means an order that settles administrative or civil proceedings against an entity that may, prima facie, be found to have violated securities laws. This reduces regulatory costs and saves the time and effort spent on pursuing enforcement actions. The US Securities and Exchange Commission settles more than 90 per cent administrative/civil cases through consent orders.
Data with Sebi show that a large number of market entities facing regulatory action, including prosecution and adjudication, opt for the consent route to end the ordeal that, at times, can continue for years. Until December 31, 2010, Sebi had received 2,220 applications, of which 1,023 were approved by the high-powered advisory committee. Of these, 982 cases have been settled.
Consent orders have helped the regulator extract more than Rs 150 crore (including Rs 50 crore from Anil Ambani and five other executives of R-Infra and RNRL) as settlement charges. This money goes directly to the Consolidated Fund of India.
Sebi has also been able to collect nearly Rs 29 crore as disgorgement amount from those named in the IPO (initial public offer) scam. The amount collected has been distributed to the victims of the scam. Sebi has also garnered a little over Rs 1 crore for itself in the form of legal and administrative charges.
Experts say the consent route helps the regulator overcome the long-drawn process involving the regulator, the appellate tribunal and the judiciary.
“The consent mechanism enables Sebi to extract punishment without actual proof of wrongdoing, short-circuiting a decade-long process to a few weeks,” says Sandeep Parekh, founder, Finsec Law Advisors. “Also, as Sebi can (and does) impose a higher quantum of settlement fee and disgorgement, in exchange for a ‘without admitting or denying guilt’ plea, it allows effective payment to the victims of the harm done,” adds Parekh, who has earlier served as executive director (legal) at Sebi.
The acceptance of consent orders can be gauged from the fact that entities file consent applications even after their cases have moved to the Securities Appellate Tribunal or the high courts. The consent terms in such cases, technically known as ‘compounding’, have to be approved by the respective authorities looking into the cases. Nearly 70 such cases have been disposed by Sebi.
Lawyers, however, say the regulator should be more forthcoming with details in the order, which often leaves a lot of questions unanswered. A common criticism is that the accused entities are allowed to escape with a monetary penalty or disciplinary action that does not justify the nature of the offence.
“An area where the process can be reformed is details in the consent order,” said a lawyer specialising in securities law. “Ideally, the order should contain more details of the charges, so that people are not under the impression that a person got away lightly,” he said.
Mumbai February 1, 2011
Nearly 1,000 cases settled; Rs 29 cr recovered as disgorgement fee.
The consent order mechanism has proved to be an effective weapon for the Securities and Exchange Board of India (Sebi), helping the regulator settle nearly 1,000 cases and collect more than Rs 150 crore as settlement charges.
The recent high-profile regulatory action against Anil Ambani-controlled Reliance Infrastructure (R-Infra) and Reliance Natural Resources (RNRL) has, once again, brought to the fore the importance of the mechanism, introduced in 2007.
Consent order means an order that settles administrative or civil proceedings against an entity that may, prima facie, be found to have violated securities laws. This reduces regulatory costs and saves the time and effort spent on pursuing enforcement actions. The US Securities and Exchange Commission settles more than 90 per cent administrative/civil cases through consent orders.
Data with Sebi show that a large number of market entities facing regulatory action, including prosecution and adjudication, opt for the consent route to end the ordeal that, at times, can continue for years. Until December 31, 2010, Sebi had received 2,220 applications, of which 1,023 were approved by the high-powered advisory committee. Of these, 982 cases have been settled.
Consent orders have helped the regulator extract more than Rs 150 crore (including Rs 50 crore from Anil Ambani and five other executives of R-Infra and RNRL) as settlement charges. This money goes directly to the Consolidated Fund of India.
Sebi has also been able to collect nearly Rs 29 crore as disgorgement amount from those named in the IPO (initial public offer) scam. The amount collected has been distributed to the victims of the scam. Sebi has also garnered a little over Rs 1 crore for itself in the form of legal and administrative charges.
Experts say the consent route helps the regulator overcome the long-drawn process involving the regulator, the appellate tribunal and the judiciary.
“The consent mechanism enables Sebi to extract punishment without actual proof of wrongdoing, short-circuiting a decade-long process to a few weeks,” says Sandeep Parekh, founder, Finsec Law Advisors. “Also, as Sebi can (and does) impose a higher quantum of settlement fee and disgorgement, in exchange for a ‘without admitting or denying guilt’ plea, it allows effective payment to the victims of the harm done,” adds Parekh, who has earlier served as executive director (legal) at Sebi.
The acceptance of consent orders can be gauged from the fact that entities file consent applications even after their cases have moved to the Securities Appellate Tribunal or the high courts. The consent terms in such cases, technically known as ‘compounding’, have to be approved by the respective authorities looking into the cases. Nearly 70 such cases have been disposed by Sebi.
Lawyers, however, say the regulator should be more forthcoming with details in the order, which often leaves a lot of questions unanswered. A common criticism is that the accused entities are allowed to escape with a monetary penalty or disciplinary action that does not justify the nature of the offence.
“An area where the process can be reformed is details in the consent order,” said a lawyer specialising in securities law. “Ideally, the order should contain more details of the charges, so that people are not under the impression that a person got away lightly,” he said.
Sebi board to skip Jalan report
Ashish Rukhaiyar
Mumbai January 31, 2011
Final decision on Takeover Code unlikely at Feb 7 meet.
The Bimal Jalan Committee report will have to wait for some time to get the regulatory nod. The board of the Securities and Exchange Board of India (Sebi), scheduled to meet on February 7, has not included it in the agenda. While the Takeover Code will be the highlight of the board meet, a final decision is unlikely due to the finance ministry’s reservations over certain issues.
According to people familiar with the development, Sebi officials need more time to deliberate on the recommendations of the committee, formed to review the ownership and governance of market infrastructure institutions (MIIs), including stock exchanges, depositories and clearing corporations.
“There are certain issues (in the Jalan report) on which consensus has not been reached and some more time is required for discussions,” said a person privy to the developments. “It will be placed before the board only after the regulator is through with its own share of deliberations,” he added on condition of anonymity. This will also be the last board meeting for chairman C B Bhave if he does not get an extension. His three-year term ends on February 17.
The Jalan report, among other things, has recommended capping profits of MIIs, allowing only banks and public financial institutions as anchor investors and not allowing these institutions to list. Ever since the report has been made public, there has been a lot of diverse feedback from industry participants, with many opposing most of the recommendations.
Meanwhile, the Sebi board will take up the pending Takeover Code, discussions on which remained “inconclusive” during the last board meet held on October 25, 2010. People familiar with the development, however, say a final decision will probably not be taken as the finance ministry is yet to take a final call on issues such as the quantum of the open offer, etc.
The Achuthan committee, which has framed the proposed regulations, has said the acquirer should make an open offer for all the remaining shares, as against the current practice of 20 per cent.
Early this month, Sebi whole-time member K M Abraham had said on the sidelines of a conference that a final decision on the code would take more time. “It will probably take one or two more board meetings to arrive at a decision,” he had said, while refusing to give a specific timeline.
Reports suggest the regulator will also discuss the issue of further reduction in the timeline for initial public offers (IPOs) from the current 12 days to seven days and the framework for the rights issues of Indian depository receipts. Bhave, incidentally, has reiterated his aim of cutting the IPO timeline to one week on several occasions during his tenure.
Mumbai January 31, 2011
Final decision on Takeover Code unlikely at Feb 7 meet.
The Bimal Jalan Committee report will have to wait for some time to get the regulatory nod. The board of the Securities and Exchange Board of India (Sebi), scheduled to meet on February 7, has not included it in the agenda. While the Takeover Code will be the highlight of the board meet, a final decision is unlikely due to the finance ministry’s reservations over certain issues.
According to people familiar with the development, Sebi officials need more time to deliberate on the recommendations of the committee, formed to review the ownership and governance of market infrastructure institutions (MIIs), including stock exchanges, depositories and clearing corporations.
“There are certain issues (in the Jalan report) on which consensus has not been reached and some more time is required for discussions,” said a person privy to the developments. “It will be placed before the board only after the regulator is through with its own share of deliberations,” he added on condition of anonymity. This will also be the last board meeting for chairman C B Bhave if he does not get an extension. His three-year term ends on February 17.
The Jalan report, among other things, has recommended capping profits of MIIs, allowing only banks and public financial institutions as anchor investors and not allowing these institutions to list. Ever since the report has been made public, there has been a lot of diverse feedback from industry participants, with many opposing most of the recommendations.
Meanwhile, the Sebi board will take up the pending Takeover Code, discussions on which remained “inconclusive” during the last board meet held on October 25, 2010. People familiar with the development, however, say a final decision will probably not be taken as the finance ministry is yet to take a final call on issues such as the quantum of the open offer, etc.
The Achuthan committee, which has framed the proposed regulations, has said the acquirer should make an open offer for all the remaining shares, as against the current practice of 20 per cent.
Early this month, Sebi whole-time member K M Abraham had said on the sidelines of a conference that a final decision on the code would take more time. “It will probably take one or two more board meetings to arrive at a decision,” he had said, while refusing to give a specific timeline.
Reports suggest the regulator will also discuss the issue of further reduction in the timeline for initial public offers (IPOs) from the current 12 days to seven days and the framework for the rights issues of Indian depository receipts. Bhave, incidentally, has reiterated his aim of cutting the IPO timeline to one week on several occasions during his tenure.
Sebi to soon release guidelines for trade in foreign indices
Ashish Rukhaiyar
Mumbai January 11, 2011
The regulator may mandate a minimum market capitalisation of $100 billion.
The Securities and Exchange Board of India (Sebi) will soon come out with a regulatory framework for allowing Indian stock exchanges to launch derivatives based on indices abroad. Sebi will lay down the finer contours related to market capitalisation, number of stocks in the indices and their weights.
According to people familiar with the matter, the regulator wants stock exchanges to introduce derivatives only in indices that have a minimum market capitalisation of $100 billion and are broad-based. In other words, Sebi plans to put in place comprehensive norms that will serve as the base for all future alliances between Indian and foreign exchanges.
“The complete framework has been decided and will be announced soon,” said a person privy to the development, on condition of anonymity. “While it (overseas index) should have a minimum m-cap (market capitalisation) of $100 bn, there should be at least 10 stocks in the index. Further, most of the stocks should have substantial weights in the index.”
This will be important step, as Indian stock exchanges are trying hard to bring home some of the leading overseas indices, to garner higher market share. Globally, some of the biggest bourses like the Chicago Mercantile Exchange (CME) and the Singapore Stock Exchange (SGX) offer trading in a number of foreign indices.
Flurry likely
Industry players believe exchanges will be quick in launching futures contracts based on foreign indices once the norms are notified. It is almost an year since the National Stock Exchange (NSE) entered into cross-listing arrangements with CME and the London Stock Exchange (LSE). The norms will provide investors an opportunity to place bets on markets like the US and the UK.
Under the arrangement with CME, NSE has exclusive rights for trading in the S&P 500 and the Dow Jones Industrial Average rupee-denominated futures contracts for trading in India.
This is being made available to NSE via sub-licences from the CME Group, Standard & Poor’s and Dow Jones, respectively.
NSE has also signed a letter of intent with the LSE for getting the FTSE 100 in India. “As part of the letter (of intent), both exchanges declared their intent to explore the feasibility of an agreement whereby FTSE Group may licence the FTSE 100 Index to the NSE, and whereby the NSE may licence the S&P CNX Nifty to London Stock Exchange Group for the purpose of issuing and trading options and other index contracts,” says the NSE release dated July 28.
Incidentally, the market capitalisation of S&P 500 is a whopping 11.83 trillion, according to data available on Bloomberg. Similarly, DJIA commands a market capitalisation of $3.71 trillion. The London-based FTSE 100 also features among the world’s largest indices, with market capitalisation of $2.58 trillion.
MCX Stock Exchange (MCX-SX) has also entered into a tie-up with FTSE to facilitate creation of international investment products, including international FTSE indices, to be listed and traded on MCX-SX. It is, however, currently in a state of flux, as its equity segment is yet not operational.
Mumbai January 11, 2011
The regulator may mandate a minimum market capitalisation of $100 billion.
The Securities and Exchange Board of India (Sebi) will soon come out with a regulatory framework for allowing Indian stock exchanges to launch derivatives based on indices abroad. Sebi will lay down the finer contours related to market capitalisation, number of stocks in the indices and their weights.
According to people familiar with the matter, the regulator wants stock exchanges to introduce derivatives only in indices that have a minimum market capitalisation of $100 billion and are broad-based. In other words, Sebi plans to put in place comprehensive norms that will serve as the base for all future alliances between Indian and foreign exchanges.
“The complete framework has been decided and will be announced soon,” said a person privy to the development, on condition of anonymity. “While it (overseas index) should have a minimum m-cap (market capitalisation) of $100 bn, there should be at least 10 stocks in the index. Further, most of the stocks should have substantial weights in the index.”
This will be important step, as Indian stock exchanges are trying hard to bring home some of the leading overseas indices, to garner higher market share. Globally, some of the biggest bourses like the Chicago Mercantile Exchange (CME) and the Singapore Stock Exchange (SGX) offer trading in a number of foreign indices.
Flurry likely
Industry players believe exchanges will be quick in launching futures contracts based on foreign indices once the norms are notified. It is almost an year since the National Stock Exchange (NSE) entered into cross-listing arrangements with CME and the London Stock Exchange (LSE). The norms will provide investors an opportunity to place bets on markets like the US and the UK.
Under the arrangement with CME, NSE has exclusive rights for trading in the S&P 500 and the Dow Jones Industrial Average rupee-denominated futures contracts for trading in India.
This is being made available to NSE via sub-licences from the CME Group, Standard & Poor’s and Dow Jones, respectively.
NSE has also signed a letter of intent with the LSE for getting the FTSE 100 in India. “As part of the letter (of intent), both exchanges declared their intent to explore the feasibility of an agreement whereby FTSE Group may licence the FTSE 100 Index to the NSE, and whereby the NSE may licence the S&P CNX Nifty to London Stock Exchange Group for the purpose of issuing and trading options and other index contracts,” says the NSE release dated July 28.
Incidentally, the market capitalisation of S&P 500 is a whopping 11.83 trillion, according to data available on Bloomberg. Similarly, DJIA commands a market capitalisation of $3.71 trillion. The London-based FTSE 100 also features among the world’s largest indices, with market capitalisation of $2.58 trillion.
MCX Stock Exchange (MCX-SX) has also entered into a tie-up with FTSE to facilitate creation of international investment products, including international FTSE indices, to be listed and traded on MCX-SX. It is, however, currently in a state of flux, as its equity segment is yet not operational.
Sebi revisits interest rate futures norms to enhance volumes
Ashish Rukhaiyar
Mumbai January 7, 2011
Wants banks to perform the role of market makers to boost investor participation.
The Securities and Exchange Board of India (Sebi) will soon unveil amendments in guidelines governing interest rate futures (IRF), which have seen close to nil volume. According to people familiar with the development, the regulator wants banks to perform the role of market makers to enhance liquidity and investor participation.
Interest rate futures is an exchange-traded derivative instrument for hedging against interest rate risk. Only the National Stock Exchange (NSE) offers trading in IRFs, launched for the first time in 2003. IRFs are based on a notional 10-year government (GOI) bond, bearing a notional seven per cent interest rate coupon, payable half-yearly.
“The regulator wants banks to act as market makers, as they are the biggest players in the IRF space,” said a person familiar with the development. “Market making is a tried and tested method and is likely to boost IRF volumes. It will, however, be a part of a regulatory overhaul, as the current mechanism has certainly not worked,” he said, on condition of anonymity.
A committee is framing the new IRF guidelines and contract specifications. It has representation from Sebi and the Reserve Bank of India. It is believed the new guidelines will be announced after the new chairman takes over in February.
The IRF market has proved a tough nut to crack for regulators. It was launched for the second time in September 2009, but volumes are still the biggest concern. On most days in the recent past, only a single token trade has been executed on NSE.
Market players feel market making isn’t enough and many issues will have to be revisited. A large section has been demanding cash settlement.
“Market making works in a ‘driven’ market and is not order-driven,” says Jayesh Mehta, MD & country treasurer, global markets group, Bank of America. “Today the underlying bonds itself are not trading enough and in a basket of deliverables, where the price is determined by formula, it is fine when all bonds are trading. Today, the buyer does not know what will get delivered and since these bonds don’t trade, theoretical pricing would be way different from the actual price. The solution is to move to single securities contract.”
It is widely believed the uncertainty over liquidity of the underlying bond is holding back players. There are concerns that one can just dump the illiquid bonds at the time of settlement.
The current regulatory framework allows participants to settle the contracts with delivery of GOI securities with a tenor between nine and 12 years. The tenor of deliverable grade securities was fixed between 7.5 years and 15 years at the time of the launch of the segment.
Mumbai January 7, 2011
Wants banks to perform the role of market makers to boost investor participation.
The Securities and Exchange Board of India (Sebi) will soon unveil amendments in guidelines governing interest rate futures (IRF), which have seen close to nil volume. According to people familiar with the development, the regulator wants banks to perform the role of market makers to enhance liquidity and investor participation.
Interest rate futures is an exchange-traded derivative instrument for hedging against interest rate risk. Only the National Stock Exchange (NSE) offers trading in IRFs, launched for the first time in 2003. IRFs are based on a notional 10-year government (GOI) bond, bearing a notional seven per cent interest rate coupon, payable half-yearly.
“The regulator wants banks to act as market makers, as they are the biggest players in the IRF space,” said a person familiar with the development. “Market making is a tried and tested method and is likely to boost IRF volumes. It will, however, be a part of a regulatory overhaul, as the current mechanism has certainly not worked,” he said, on condition of anonymity.
A committee is framing the new IRF guidelines and contract specifications. It has representation from Sebi and the Reserve Bank of India. It is believed the new guidelines will be announced after the new chairman takes over in February.
The IRF market has proved a tough nut to crack for regulators. It was launched for the second time in September 2009, but volumes are still the biggest concern. On most days in the recent past, only a single token trade has been executed on NSE.
Market players feel market making isn’t enough and many issues will have to be revisited. A large section has been demanding cash settlement.
“Market making works in a ‘driven’ market and is not order-driven,” says Jayesh Mehta, MD & country treasurer, global markets group, Bank of America. “Today the underlying bonds itself are not trading enough and in a basket of deliverables, where the price is determined by formula, it is fine when all bonds are trading. Today, the buyer does not know what will get delivered and since these bonds don’t trade, theoretical pricing would be way different from the actual price. The solution is to move to single securities contract.”
It is widely believed the uncertainty over liquidity of the underlying bond is holding back players. There are concerns that one can just dump the illiquid bonds at the time of settlement.
The current regulatory framework allows participants to settle the contracts with delivery of GOI securities with a tenor between nine and 12 years. The tenor of deliverable grade securities was fixed between 7.5 years and 15 years at the time of the launch of the segment.
Sebi ban cleans up FII space
Ashish Rukhaiyar
Mumbai January 05, 2011
The capital market regulator’s ban on certain foreign institutional investor (FII) structures is helping weed out non-genuine overseas investors. In the recent past, many FIIs have surrendered registration, while a number of sub-accounts have converted themselves into registered institutional investors.
According to the Securities and Exchange Board of India (Sebi), 24 FIIs and 130 sub-accounts have applied for surrendering registration after the new norms. In all, 188 non-compliant FIIs and 336 sub-accounts are barred from taking fresh positions in the Indian market. They, however, can retain positions or sell off/unwind.
According to experts, the list of entities opting for surrender will swell in the coming days, as overseas investors serious about investing in India will restructure and seek direct registration. They say that some entities will use the participatory note (PN) route to invest rather than restructure.
“It’s a combination of three factors. Some entities that have surrendered their memberships would be those that were never active in India. In other words, India did not feature as a large allocation country,” said Siddharth Shah, principal and head (fund formation), Nishith Desai Associates.
“Many others converted their sub-accounts into registered FIIs, thereby surrendering their original sub-accounts, whereas some entities surrendering their registration would opt for the PN route. The Sebi move has led to a clean-up, encouraging dormant players to surrender,” he added.
In April 2010, Sebi asked FIIs to stop using the complex structures of protected cell companies and segregated portfolio companies. In addition, it said the investor base be broadbased in case of multi-class share vehicles (MCVs). The deadline was September 30.
Protected cell companies are entities with several cells within the same vehicle. A cell has its own assets, liabilities, capital, dividends and accounts. Each cell functions as an independent unit within the overall set-up and the debtors and creditors of each cell have no claims against the assets or liabilities of another cell.
An MCV is a structured entity where investors in each class have different contractual agreements with sub-accounts with regards to investment strategies, liabilities and fund manager.
Incidentally, after Sebi’s restrictions on PNs in 2008, MCVs had become popular with hedge funds and a large number of individual investors. The notional value of investments in equities through PNs was as high as 35 per cent in January 2008. This fell to below 15 per cent in December 2008. At present, the number is below 14 per cent.
Mumbai January 05, 2011
The capital market regulator’s ban on certain foreign institutional investor (FII) structures is helping weed out non-genuine overseas investors. In the recent past, many FIIs have surrendered registration, while a number of sub-accounts have converted themselves into registered institutional investors.
According to the Securities and Exchange Board of India (Sebi), 24 FIIs and 130 sub-accounts have applied for surrendering registration after the new norms. In all, 188 non-compliant FIIs and 336 sub-accounts are barred from taking fresh positions in the Indian market. They, however, can retain positions or sell off/unwind.
According to experts, the list of entities opting for surrender will swell in the coming days, as overseas investors serious about investing in India will restructure and seek direct registration. They say that some entities will use the participatory note (PN) route to invest rather than restructure.
“It’s a combination of three factors. Some entities that have surrendered their memberships would be those that were never active in India. In other words, India did not feature as a large allocation country,” said Siddharth Shah, principal and head (fund formation), Nishith Desai Associates.
“Many others converted their sub-accounts into registered FIIs, thereby surrendering their original sub-accounts, whereas some entities surrendering their registration would opt for the PN route. The Sebi move has led to a clean-up, encouraging dormant players to surrender,” he added.
In April 2010, Sebi asked FIIs to stop using the complex structures of protected cell companies and segregated portfolio companies. In addition, it said the investor base be broadbased in case of multi-class share vehicles (MCVs). The deadline was September 30.
Protected cell companies are entities with several cells within the same vehicle. A cell has its own assets, liabilities, capital, dividends and accounts. Each cell functions as an independent unit within the overall set-up and the debtors and creditors of each cell have no claims against the assets or liabilities of another cell.
An MCV is a structured entity where investors in each class have different contractual agreements with sub-accounts with regards to investment strategies, liabilities and fund manager.
Incidentally, after Sebi’s restrictions on PNs in 2008, MCVs had become popular with hedge funds and a large number of individual investors. The notional value of investments in equities through PNs was as high as 35 per cent in January 2008. This fell to below 15 per cent in December 2008. At present, the number is below 14 per cent.
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