Easier market access on anvil for NRIs, foreigners

Mumbai: Overseas investors like non resident Indians (NRIs), foreign firms and individuals may be allowed to invest in the local stock markets by registering with foreign institutional investors (FIIs).

However FIIs, who register these investors as sub-accounts will be responsible for any transgression of investment and regulatory norms in sub-accounts and will have to conduct all checks on the investors.

Securities market watchdog SEBI will have to rework its regulations relating to FIIs to facilitate these changes. Similarly, the Foreign Exchange Management regulations administered by the RBI will need to be modified in consultation with the government since NRIs are now allowed to invest only through Portfolio Investment Schemes.

The proposal to redefine and expand the criteria for sub-accounts of FIIs was discussed at Sebi's weekend board meeting, officials said.

According to an official privy to the developments, the government has made it clear that the objective should be to ensure a minimum issuance of participatory notes (PNs) in the Indian markets.

PNs are derivative instruments whose underlying securities are shares of Indian companies and are issued by FIIs registered here to investors who either want to trade anonymously or are unwilling to go for a direct registration.

The issue of PNs has fuelled concerns of money laundering and round tripping - the practice of local money flowing out of the country and then coming back in the guise of foreign investment.

Policy makers say that if the aim is to keep PNs out - it is necessary to remove the distortions or the incentives which exist now for overseas investors to use such instruments.