FII POLICY DEVELOPMENTS:For agrowing economy like India the investors were becoming more optimistic aboutthe investing in financial markets here and the policies were also framedaccordingly, liberalizing the limitations and restrictions on investments andmaking the investment instruments more accessible. Some of the importantdevelopments are stated below.
1. Allocation of government debt andcorporate debt investment limits to FIIs:The SEBI (vide its circular dated November26, 2010) drafted the subsequent decisionsa) Increased investment limit for FIIsin government and corporate debt: In an effort to boost FII investmentin debt securities, the government has raised the current limit of Fllinvestment in government securities by U.S. $ 5 billion, raising the cap to US$ 10 billion. Similarly, the current limit of Fll investment in corporate bondshas additionally been increased by U.S. $ 5 billion, raising the cap to U.S.
$20 billion. This incremental limit shall be invested in company bonds with aresidual maturity of over 5 years issued by firms involved in infrastructuresector. The market regulator SEBI stated this vide its circular dated November26, 2010. b) Thetime period for the use of the debt limits: In July 2008, some changes referringto the methodology for the allocation of the debt limit had been given. Incontinuation of a similar, the SEBI has set that the time period for theutilization of the corporate debt limits allotted through the bidding method(for both old and long-term infra limit) shall be 90 days. However, the timeperiod for the utilization of the government debt limits allotted through thebidding method shall stay 45 days.
Moreover, the time period for the use of thecorporate debt limits allotted through the first-come, first-served methodshall be 22 operating days, whereas that for the government debt limits shallstay unchanged at 11 operating days. Further, it was set to grant a period ofup to 15 working days for the replacement of the disposed off/matured debtinstruments/positions for corporate debt, whereas the period for state debtwill still be 5 working days. c) Government debt long terms: The SEBI, vide its circular dated Feb2009, had set that no single entity shall be allotted quite ` 10,000 crore ofthe investment limit. In a partial change to this, the SEBI (vide its circulardated November 26, 2010) has decided that no single entity shall be allottedquite ` 2000 crore of the investment limit.
Where a single entity bids on behalf of multiple entities,such bids would be restricted to ` 2,000 crore for every such single entity.Further, the minimum amount that can be bid for shall be ` 200 crore, and theminimum tick size has been set as ` 100 crore. d) Corporate debt (Old limit): The SEBI has decided that no singleentity shall be allocated over ` 600 crore of the investment limit. Where a singleentity bids on behalf of multiple entities, such bids would be limited to ` 600crore for every such single entity. Further, the minimum quantity that can bebid for has been set as ` 100 crore, and the minimum tick size has been set as` 50 crore. e)Multiple bid orders from a single entity: The SEBI has allowed bidders tobid for over one entity in the bidding process provided: • It provides due authorization fromthose entities to act in that capacity; • It provides the stock exchangeswith the allocation of the boundaries inters for the entities it has bid for toexchange within 15 minutes of the shut of the bidding session. f) FII investment into debt securities whichneeds to be mentioned: The market regulator has decided thatFIIs will be allowed to invest in primary debt problems provided that thelisting is committed to be done within fifteen days.
If the debt issue couldnot be listed within fifteen days of issue, then the holding of theFIIs/sub-accounts—if disposed off—shall be sold solely to domestic participants/investors until the securities arelisted. This is in distinction to the earlier laws issued in April 2006,wherein FII investments were restricted to the listed debt securities of firms.2. Collateral and its management by FIIs for Transactions in the cashsegment In addition to cash, for theirtransactions in the cash segment of the market.
The RBI in consultation withthe govt. of India and the SEBI has decided (vide its circular dated Apr 12,2010) to allow FIIs to give domestic government securities and foreignsovereign securities with AAA rating as collateral to the recognized stockexchanges in India.3. Reporting of Lending of Securitiesbought in the Indian Market:The SEBI (videits circular dated June 29, 2010) has decided that the FIIs’ reporting of thelending of securities bought in the Indian market will be done on a weeklybasis instead of the former practice of daily submissions. In accordance withthis change in the periodicity of the reports, FIIs are required to submit thereports every Friday, with effect from July 02, 2010. Further, in view of thechange in the periodicity of the reporting, the PN issuing the FIIs arerequired to submit the undertaking along with the weekly report.
4. FIIparticipation in Interest Rate Futures: The FIIs have been allowed toparticipate in the interest rate futures that were introduced for trading atthe NSE on August 31, 2009. 5. FII Investment in Corporate Bonds InfraLong-term Category. Trends in FII investment: Investmentsindicate periods of up trends and down trends since 2000-01 till the recentavailable data APR-SEP 2011. With the net investment being highest in the year2010-11 at 14, 64,380 (million Rs).
The purchases have though shown a recentgrowth throughout.