SEBI set to ease margin requirement for FII's

In an effort to revive investors’ sentiment that has taken a severe hammering due to qualms over the economy and contentious tax measures, the Securities and Exchange Board of India (SEBI) plans to ease the margin requirement for foreign institutional investors (FIIs). The proposal, which is expected to be taken up for discussion in SEBI’s next board meeting, scheduled to be held as early as next week, on materializing would provide a level-playing field to FIIs in terms of collateral.

The market regulator’s measures can be seen in the light of Finance Minister P. Chidambaram’s assurance of more measures coming to play for reviving investment sentiment after the SEBI announced steps to energize the mutual fund industry.

At present, FII’s are required to submit full collateral in cash for derivatives as well as the cash segment. However, as per the eased norms, SEBI may permit foreign investors to submit domestic instruments, such as approved securities, bank guarantees, fixed deposits, government bonds and mutual funds, as collateral. Presently, domestic institutions have the leverage to place just a part of collateral in cash, as the rest can be managed in the form of shares, fixed deposits, corporate bonds and Government securities.

FIIs were earlier permitted to offer cash and foreign sovereign securities with AAA rating as collateral for their transactions in the derivative segments, but the same could not be implemented on account of custodian’s reluctance, which as part of their risk management, insist on cash, not foreign securities.

Such a move is also expected to improve forex inflow, which is significantly important as the current account deficit touched a record 4.2 per cent in 2011-12. Meanwhile, overseas investors have pumped in close to Rs 11,000 crore in the Indian stock market in August, highest in six months, amid hopes of government initiatives on policy reforms and easing of monetary policy globally.