Sebi relaxes short sale reporting norms for FIIs

The Securities and Exchange Board of India (Sebi) on Tuesday relaxed reporting norms on short sales by foreign institutional investors (FIIs), allowing them to make weekly submission on securities lent to entities abroad. The new reporting norms come into effect from July 2.

“FIIs have been submitting daily reports for public dissemination twice a week — Tuesdays and Fridays .... FIIs shall now be required to submit the reports every Friday,” said a Sebi circular.

However, those FIIs which issue participatory notes (PNs) will be required to report any fresh short positions ‘immediately’ to Sebi, the circular added.

There are 28 PN-issuing FIIs registered with Sebi. As of May, the total value of PNs with underlying Indian securities is 15 per cent (Rs 159,927 crore) of the total FII assets under management (Rs 883,379 crore).

The public disclosures on FII lending of securities to entities abroad will accordingly be now made once a week, i.e., every Tuesday.

FIIs and their sub-accounts are required to submit information about the quantity of the securities lent to entities abroad, whereby FIIs issue the overseas derivative instruments (ODIs). ODIs issued by FIIs have the effect of a short sale in the Indian security market (including F&O).

“The move seems to be aimed at providing operational convenience. It is just to take away the load of daily reporting since now there is more time given for securities lending,” said Deena Mehta, director of Asit C Mehta Investment Intermediates.

Sebi has in the past raised the tenure for securities lending from seven days to 30 days and later up to a year.

“Since there is not too much volume in the SLBM so far, it will be convenient for FIIs to report on weekly basis rather than daily,” Anita Gandhi, head of institutional business at Arihant Capital Markets, said.

However, market participants said it would not make much difference to SLBM, which has failed to take off since its re-launch in April 2008. In June so far, only 10 trades worth Rs 24,500 were reported on NSE. “That the move will boost the SLBM will be asking for too much,” Mehta said.

Weekly reporting of securities lending by FIIs will have no impact on short selling, said another broker handling institutional clients.

Financial Chronicle, New Delhi, 30-06-2010