Barclays under SEBI cloud; told to stop derivatives trading

The Securities and Exchange Board of India has ordered Barclays Bank Plc to stop selling or trading offshore derivatives. The country's capital markets regulator told the UK-based bank late on Wednesday not to issue or subscribe to fresh offshore derivative instruments (often known as participatory notes or PNs).

The regulator said it found the UK-based bank to be in breach of disclosure rules that guide offshore derivative activity of foreign institutional investors in India, adding that it had provided ''false information'' on such transactions. Most of these derivatives transactions seem to involve the Anil Ambani-controlled Reliance Communications stock.

Barclays confirmed in a statement today that it has received a notice from SEBI to this effect. "We have been and will continue to co-operate fully with SEBI as it examines certain offshore derivative transactions," it said.

SEBI said Barclays must show it has adequate controls in place before it can resume selling the instruments. Barclays, which received an initial inquiry from the regulator on 24 September, was given until 18 December to respond.

The regulator lifted curbs on overseas investors in October last year in a bid to stem record sales by offshore funds that triggered a 52 per cent slide in the nation's benchmark stock index in 2008.

The total value of derivative instruments with underlying Indian stocks was Rs1,25,000 crore ($26.8 billion) at the end of October, according to data from the regulator. That constitutes 16.5 per cent of investments made by overseas investors in Indian stocks.