FII the debt limit had been given. In

FII POLICY DEVELOPMENTS:

For a
growing economy like India the investors were becoming more optimistic about
the investing in financial markets here and the policies were also framed
accordingly, liberalizing the limitations and restrictions on investments and
making the investment instruments more accessible. Some of the important
developments are stated below.

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1.    
Allocation of government debt and
corporate debt investment limits to FIIs:

The SEBI (vide its circular dated November
26, 2010) drafted the subsequent decisions

a)    
Increased investment limit for FIIs
in government and corporate debt:

In an effort to boost FII investment
in debt securities, the government has raised the current limit of Fll
investment in government securities by U.S. $ 5 billion, raising the cap to US
$ 10 billion. Similarly, the current limit of Fll investment in corporate bonds
has 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 a
residual maturity of over 5 years issued by firms involved in infrastructure
sector. The market regulator SEBI stated this vide its circular dated November
26, 2010.

b)  The
time period for the use of the debt limits:

In July 2008, some changes referring
to the methodology for the allocation of the debt limit had been given. In
continuation of a similar, the SEBI has set that the time period for the
utilization of the corporate debt limits allotted through the bidding method
(for both old and long-term infra limit) shall be 90 days. However, the time
period for the utilization of the government debt limits allotted through the
bidding method shall stay 45 days. Moreover, the time period for the use of the
corporate debt limits allotted through the first-come, first-served method
shall be 22 operating days, whereas that for the government debt limits shall
stay unchanged at 11 operating days. Further, it was set to grant a period of
up to 15 working days for the replacement of the disposed off/matured debt
instruments/positions for corporate debt, whereas the period for state debt
will still be 5 working days.

c) Government debt long terms:

The SEBI, vide its circular dated Feb
2009, had set that no single entity shall be allotted quite ` 10,000 crore of
the investment limit. In a partial change to this, the SEBI (vide its circular
dated November 26, 2010) has decided that no single entity shall be allotted
quite ` 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 the
minimum tick size has been set as ` 100 crore.

d) Corporate debt (Old limit):

The SEBI has decided that no single
entity shall be allocated over ` 600 crore of the investment limit. Where a single
entity bids on behalf of multiple entities, such bids would be limited to ` 600
crore for every such single entity. Further, the minimum quantity that can be
bid 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 to
bid for over one entity in the bidding process provided:

• It provides due authorization from
those entities to act in that capacity;

• It provides the stock exchanges
with the allocation of the boundaries inters for the entities it has bid for to
exchange within 15 minutes of the shut of the bidding session.

f) FII investment into debt securities which
needs to be mentioned:

The market regulator has decided that
FIIs will be allowed to invest in primary debt problems provided that the
listing is committed to be done within fifteen days. If the debt issue could
not be listed within fifteen days of issue, then the holding of the
FIIs/sub-accounts—if disposed off—shall be sold 
solely to domestic participants/investors until the securities are
listed. 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 cash
segment

In addition to cash, for their
transactions in the cash segment of the market. The RBI in consultation with
the govt. of India and the SEBI has decided (vide its circular dated Apr 12,
2010) to allow FIIs to give domestic government securities and foreign
sovereign securities with AAA rating as collateral to the recognized stock
exchanges in India.

3. Reporting of Lending of Securities
bought in the Indian Market:

The SEBI (vide
its circular dated June 29, 2010) has decided that the FIIs’ reporting of the
lending of securities bought in the Indian market will be done on a weekly
basis instead of the former practice of daily submissions. In accordance with
this change in the periodicity of the reports, FIIs are required to submit the
reports every Friday, with effect from July 02, 2010. Further, in view of the
change in the periodicity of the reporting, the PN issuing the FIIs are
required to submit the undertaking along with the weekly report.

 4. FII
participation in Interest Rate Futures: The FIIs have been allowed to
participate in the interest rate futures that were introduced for trading at
the NSE on August 31, 2009.

5. FII Investment in Corporate Bonds Infra
Long-term Category.

 

Trends in FII investment: Investments
indicate periods of up trends and down trends since 2000-01 till the recent
available data APR-SEP 2011. With the net investment being highest in the year
2010-11 at 14, 64,380 (million Rs). The purchases have though shown a recent
growth throughout.