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
activities.
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.