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SEBI wants OCBs out of markets

Our Bureau

NEW DELHI, Sept. 6

THE Securities and Exchange Board of India (SEBI) has recommended a ban on investments by overseas corporate bodies (OCB) in the domestic capital markets, following evidence of large-scale irregularities in their dealings.

Currently, OCBs owned directly or indirectly to the extent of at least 60 per cent by NRIs or persons of Indian origin are allowed to invest in shares/convertible debentures of Indian companies under the portfolio investment scheme through a registered b roker on a recognised stock exchange.

In its interim report to the Government on the stock scam of March this year, the market regulator has also made a case for monitoring of the flow of funds into the securities market by a "central authority".

The capital market regulator has suggested that the sub-accounts of foreign institutional investors (FIIs) be asked to report all their participatory note transactions to it on a regular basis.

It has also suggested a slew of measures to prevent circumvention of rules and regulations by corporate houses through flotation of a complicated web of investment companies.

SEBI has recommended that a parent company should not be allowed to have more than one investment company even, while acknowledging that a company should have the right to set up any number of subsidiary or associate companies or partnerships for manufac turing and trading activity.

"The funds given by the corporate houses to the front companies (investment companies) for various purposes are often in reality used for stock market operations'' the SEBI report noted.

The regulator has recommended that all the listed companies should be required to make yearly declarations to the stock exchanges about the subsidiary/ associate company / partnerships set up by them for the purposes of investments.

On the changes in the policy for OCBs, the SEBI report

said that the purpose of having an OCB policy has got "defeated" since these entities have facilitated "larger outflows" rather than attracting foreign exchange.

The regulator said that several irregularities were observed during the course of investigations into the dealings of certain OCBs. It has also pointed out that these entities were used for building up concentrated positions and for circumventing the tak eover regulations. Transaction analysis of these OCBs indicated that these entities may have been used for "parking of shares and creating artificial market".

SEBI has noted that under the present dispensation there is no regulation or monitoring of flow of funds in and out of the securities market. To insulate the securities market from the vagaries of "indiscriminate funding", it has suggested that a unique client code be allotted to every person/entity participating in the securities market to be monitored by a central authority.

SEBI has mooted that brokers should disclose the source of their own/borrowed/client funds to the central authority for trading in excess of a certain limit, say Rs 5 crore in a month or Rs 20 crore in a year, whichever is earlier. This requirement will also have to be made applicable to clients.

It has also suggested that every person/entity participating in the stock market should submit annual audited accounts to the central authority if their gross turnover is in excess of a certain limit, say Rs 5 crore in a month or Rs 20 crore in a year, w hichever is earlier.

Related links:
OCBs, FII sub-accounts major channels for siphoning: SEBI
Focus on FII sub-accounts, OCBs

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