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Sebi, RBI discuss monitoring of foreign investors in real time

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Spooked by a recent breach of foreign ownership limit at HDFC Bank, regulators and intermediaries are grappling with the question of monitoring foreign investors in real time.

Both held talks on exchange of data to track realtime behaviour of foreign investors.According to sources, the Securities and Exchange of India (Sebi) and the Reserve Bank of India (RBI) met last week to discuss the February breach at HDFC Bank.They also discussed whether new systems can installed to observe foreign shareholdings and prevent breaches of investment limits.

At present, only the RBI monitors foreign investments daily. Its alarm goes off each time foreign ownership in a company breaches a certain limit, which is typically lower than the actual ceiling.However, that alarm goes off after market hours only; intraday, it never rings.

Hence, the need for realtime monitoring.

"There isa need for realtime data integration between depositories, custodians, and stock exchanges.If the stock exchange has a mechanism to automatically block trades in case the limit is reached, then the problem will be taken care of and there will be no need for the regulator to step in," said Tejesh Chitlangi, partner, IC Legal.

Experts say stocks with high foreign investment need better monitoring to avoid HDFC Bank-like breach.

"There is a need to actively monitor the top 50 or top 100 stocks, for which foreign demand is highest. Data on ownership limits need to be provided to regulators or brokers, which can then block trades in real time," said a person at a foreign brokerage, who did not wish to be named.

According to him, depositories are bestpoised to collate data and disseminate it to other intermediaries.However, they will not be able to do much on intra day monitoring.

"Ownership limit could be breached at 10 am and then fall below the threshold after two hours.How do you deal with these fluctuations will beakey said an industry official.over trade annulment week´s meeting, officials also discussed whether trades, after a cut off could be annulled, and if brokers liable for the breach, according sources.

Chitlangi believes annulment of should be last resort measure, to be used only in extreme of technical or human error: annul trade if it is not the trader´s mistake?" "There are not too instances of this (breach of investment limit) and the norms on annulment of are adequate.So no point to the rules as that will make more confusing and impact foreign trading," said Prashant Gupta, partner, Shardul Amarchand Mangaldas.Annulment refers to cancellation of trades by exchanges, which can consider a trade  for annulment on their own or on a request by a stock broker.Stock exchanges have to examine the requests by brokers before the start of the next trading day. The exchanges may also choose to reset the price of the trade instead of annulling it to minimise impact on other brokers and investors.

28TH FEBRUARY, 2017, BUSINESS STANDARD, NEW-DELHI

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