14.20       ndian    onom
     outside the purview of SEBI’s surveillance and it is Taiwan Securities and Futures Commission had
     the FII which acts as mini-exchange overseas. The    amended its FII regulations to require periodic
     actual transactions in the underlying securities     disclosure by FIIs of all offshore derivative activities
     are executed by the FIIs only at its discretion,     linked to local shares, but this requirement was
     as and when necessary and there is no one-to-        subsequently removed in June 2000 (as the
     one correspondence between transactions in the       Ashok Lahiri Committee Report says). China’s
     underlying instruments and issuance of PNs.          Securities Regulatory Commission requires entities
          The ex-post reporting requirement enjoined      to file reports related to these products with
     upon the FII in respect of PNs on a monthly basis    minimal ‘reporting requirements that emphasize
     effectively keeps the transactions in PNs out of     only on the quota utilised by them’. Other Asian
     the real time market surveillance mechanism and      countries like Hong Kong, Singapore and Japan
     beyond the enforceability jurisdiction of SEBI.
                                                          have reportedly ‘no restrictions’ or requirements
          There are also concerns that some of the        on PNs. Malaysia, Indonesia and Philippines
     money coming into the market via PNs could be
                                                          which are restricted markets though, are having
     the ‘unaccounted wealth’ camouflaged under the
                                                          no reporting requirements in this regard.
     guise of FII investment. However, this has not
     been proved so far. SEBI has indeed been successful  heDge funD
     in taking action against the FIIs who were non-
     compliant and those who had misreported offshore     This term has come up from another term
     derivatives [as happened when SEBI took actions      hedging, a process by which businesses insulate
     against two FIIs—Barclays in December 2009 and       themselves from the risk of price changes.14 Hedge
     Societe Generale in January 2010]                    funds are the lot of investible (free floating capital)
          At present, PNs are issued by large financial   capital which move very swiftly towards the more
     sector conglomerates which not only have strong      profitable sectors of an economy.
     presence in the global investment banking arena           At present, such funds easily move from the
     but also have asset management arms which            stock market of one economy to the other—away
     invest across a number of securities markets         from the low profit fetching to high profit fetching
     globally. These entities are originally incorporated ones. As stock markets fall and rise such funds
     in well-regulated and developed jurisdictions        change markets accordingly. By nature they are
     like the US, UK, etc. Further, these entities also   temporary. The period for which they continue
     possess the financial wherewithal to issue PNs,
                                                          flowing into an economy there is naturally a boom
     complemented by skilled personnel who are adept
                                                          time. But when they quit for a more attractive
     at risk management and financial engineering
                                                          economy, the same economy might not be able to
                                                          manage the accelerated foreign currency outflow
     internAtionAl situAtion                              and there are chances of imminent foreign
                                                          currency crisis. This has been in news for the last
     PN like products are not necessarily used to
                                                          two years in India where stock market has been in
     invest in restricted markets, but also reported
     to be available in the open developed/advanced       boom, riding on the FIIs inflow via Participatory
     economies like Japan, Hong Kong, Singapore,          Notes (PNs).
     Australia, the USA and UK. In response to market       14.  P.A. Samuelson and W.D. Norhdaus, Economics (New
     manipulation concerns, in December 1999,                    Delhi: Tata McGraw Hill, 2007), p. 207.