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'Disclose offshore derivative instruments activities’

(The Hindu Business Line 28th May 2008)

The Capital market regulator SEBI appears to have no objection in foreign institutional investors (FIIs) issuing offshore derivative instruments (ODIs) to overseas corporate bodies (OCBs).
A circular issued by SEBI on Tuesday has omitted dealings by FIIs and their sub-accounts with OCBs directly or indirectly, from the monthly reporting requirements.
However, FIIs have to provide monthly reports of “ODI activities” with regard to non-resident Indians and Indian residents with effect from May 2008. Fine imposed
OCBs are promoted by NRIs or Persons of Indian Origin (PIOs). The SEBI circular revising the format for the undertaking required to be provided by the FIIs and their sub-accounts on ODIs, comes after the Securities Appellate Tribunal’s (SAT) recent observations in the matter of Goldman Sachs.
SEBI had imposed a fine of Rs 1 crore on Goldman Sachs Investments (Mauritius) Ltd through its order issued on November 2006 for misreporting their dealing in ODIs with an OCB named Magnus Capital Corporation Ltd,
Upholding Goldman Sachs appeal, SAT in its order, issued on May 15, had held that there was no prohibition on the FIIs or their sub-accounts in dealing in ODIs with Indian residents/NRIs/PIOs/OCBs.Reporting requirements
The earlier undertaking, according to the circular issued in 2004 (a modification of an earlier circular issued in 2003) was a sequel to the role of the OCBs in what is known as Ketan Parekh Stock Scam. It required the FIIs and their sub-accounts to report their direct or indirect dealing in ODIs with Indian residents/NRIs/PIOs/OCBs according to the SEBI’s FII Regulations 1995.
Now dealing with OCBs directly or indirectly by FIIs and their sub-accounts are totally outside the reporting requirements, going by the omission of OCBs in the revised undertaking prescribed by SEBI, which mentions only reporting non-issuance, subscribing or purchasing of ODIs directly to non-resident Indians and Indian residents.

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