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Sebi warns of stronger action against overseas FIIs lending

Press Trust of India

MUMBAI, Oct. 20: Closely watching overseas activities by Foreign Institutional Investors (FIIs) registered in India,
market regulator Securities and Exchange Board of India (Sebi) on Monday voiced its disapproval of their lending and
borrowing activity and even warned of stronger action against this kind of practice.

"Sebi disapproves of the overseas lending/borrowing activity of FIls and the consequent selling pressure in the cash
market in India. Sebi has communicated its disapproval to the FIIs. The lending/borrowing activity of FIIs is being
monitored and if necessary stronger measures will be taken by Sebi as considered appropriate," the market regulator
said in a press note.

Sebi has given a message to investors that markets are not being manipulated by FIIs," said Nexgen Capital Equity
head Jagannadham Thunuguntla commenting on the move.

"The measure will bring in more transparency in the securities lending and borrowing market and will reduce
nervousness of the investors. It will send positive signal to the bourses that Foreign Institutional Investors Sebi is
observing the markets' movement closely," he said.

Sebi has asked custodians to communicate to their FIIs the disapproval of Sebi in this regard.

Last week, it asked FIIs and their agents to provide information on the quantity of participatory notes they have
issued to overseas entities which could be used like short sale.

"The foreign institutional investors, sub-accounts were asked to submit information about the quantity of securities
lent to entities other than in the Indian securities market - where the Overseas Derivative Instruments are issued -
which has the effect of a short sale in the Indian security," Sebi said.

Also, 17 FIIs have already provided information to Sebi about participatory notes issued to overseas entities for
October 10, 13 and 14. As per information, PNs for 22, 91, 113 ITC shares and 12, 66, 663 HDIL shares were issued.
PNs were also issued for Reliance Communications, Reliance Industries and Reliance Petroleum, Tata group's
companies, Wipro, ICICI Bank, Hindustan Lever, Axis Bank and Infosys.

Sebi said it has been reviewing the data submitted by FIIs on their stock lending activities abroad.

Short selling means selling securities which are not owned by the seller at the time of selling in order to buy it at lower
prices later.

While many markets overseas have banned short sale, India has refrained from exercising this option as the
mechanism here is quite regulated. Unlike many other countries, short sale of naked variety, which is not covered by
borrowing of shares, is not allowed in India.

So far as stock lending mechanism by Indian participants is concerned, Sebi said the facility has not been used by the
institutions.

"Sebi is reviewing the difficulties in the use of the lending-borrowing facility and would be taking steps to make this
mechanism more effective," the market regulator said.