NISHITH.TV
  • Mumbai
  • Silicon Valley
  • Bengaluru
  • Singapore
  • Mumbai BKC
  • New Delhi
  • Munich
  • New York

Locations

  • Mumbai
  • Silicon Valley
  • Bengaluru
  • Singapore
  • Mumbai BKC
  • New Delhi
  • Munich
  • New York
  • Content
  • Home
  • ABOUT US
  • NDA in the Media
  • Areas of Service
  • Research and Articles
  • Opportunities
  • Contact
  • NDACloud
  • Client Access
  • Member Access
  • Events and Calender
  • How we perform
  • Knowledge anywhere, anytime
  • See our recent deals
  • Up to date legal developments
  • Case studies in M&A

Research and Articles

HTMLPDF

  • Research at NDA
  • Research Papers
  • Research Articles
  • NDA Think Tanks
  • NDA Hotline
  • New Ali Gunjan
  • Japan Desk ジャパンデスク

NDA-Hotline


  • Capital Markets Hotline
  • Companies Act Series
  • Climate Change Related Legal Issues
  • Competition Law Hotline
  • Corpsec Hotline
  • Court Corner
  • Cross Examination
  • Deal Destination
  • Debt Funding in India Series
  • Dispute Resolution Hotline
  • Education Sector Hotline
  • FEMA Hotline
  • Financial Service Update
  • Food & Beverages Hotline
  • Funds Hotline
  • Gaming Law Wrap
  • GIFT City Express
  • Green Hotline
  • HR Law Hotline
  • iCe Hotline
  • Insolvency and Bankruptcy Hotline
  • International Trade Hotlines
  • Investment Funds: Monthly Digest
  • IP Hotline
  • IP Lab
  • Legal Update
  • Lit Corner
  • M&A Disputes Series
  • M&A Hotline
  • M&A Interactive
  • Media Hotline
  • New Publication
  • Other Hotline
  • Pharma & Healthcare Update
  • Private Client Wrap
  • Private Debt Hotline
  • Private Equity Corner
  • Real Estate Update
  • Realty Check
  • Regulatory Digest
  • Regulatory Hotline
  • Renewable Corner
  • SEZ Hotline
  • Social Sector Hotline
  • Tax Hotline
  • Technology & Tax Series
  • Technology Law Analysis
  • Telecom Hotline
  • The Startups Series
  • White Collar and Investigations Practice
  • Yes, Governance Matters.
  • Japan Desk ジャパンデスク

Corpsec Hotline

March 19, 2007

Would Hedge Funds be ultimately allowed under the FII route?

The Securities and  Exchange Board of India ("SEBI") is proposing to permit hedge funds to register with it as a foreign institutional investor ("FII") and directly participate in the Indian capital market. SEBI chairman, Mr. M. Damodaran, has made this announcement at a meeting in Singapore recently.

Background

Hedge funds are a class of investors investing on a global basis. While the term 'Hedge Fund' has not been defined under the Indian securities laws, SEBI in its report on hedge funds referred to them as unregistered private investment partnerships, funds or pools that may invest and trade in many different markets, strategies and instruments (including securities, non-securities and derivatives) and are not subject to regulatory requirement in their home country.

At present hedge funds are not permitted to invest in Indian portfolios. They are mainly investing in India through offshore derivative instruments, including participatory notes (“PNs”). PNs are instruments issued by FIIs against underlying Indian securities. Through this route, hedge funds can derive the economic benefit of investing in Indian securities without registering as FIIs or their sub-accounts and without being supervised by the SEBI.

Regulatory aspects

Even though there is no express prohibition in  the  SEBI (Foreign
 Institutional Investors   Regulations, 1995  ("FII Regulations") on  hedge funds from registering as an FII with SEBI, their unregulated nature prevents hedge funds from registering as an FII. Under the present FII Regulations, hedge funds cannot approach SEBI for registration as an FII since the norms explicitly provide that only entities regulated by a foreign regulatory authority can be registered as FIIs.

Further, there are no provisions in the FII Regulations preventing hedge funds from investing in India as an FII sponsored registered sub-account. While most hedge funds can meet the requirements of the sub-accounts of registered FII, SEBI currently withholds consideration of applications where it is found that the sub-account is a hedge fund.

Implications

Providing hedge funds a direct entry in the Indian capital market would bring them under the direct supervision / jurisdiction of SEBI. This would enable SEBI, whenever required to seek information about the ultimate beneficiaries investing through such hedge funds. This may also remove apprehensions that any India regulatory authority may have that some of the hedge funds are involved in money laundering.

It is, however, to be seen as to when and to what extent SEBI would open up the FII route for hedge funds, as this proposal has to be blessed by the Ministry of Finance (“MoF”) as well; especially in view of SEBI's similar proposals in the past, which were not approved by the MoF.

Source: Business Standard, March 19, 2007.

- Kishore Joshi & Shiju P.V.
You can direct your queries or comments to the authors

Mission and Vision


Distinctly Different

What's New


Sovereign Wealth Funds & Pension Funds-Investments into India
Research Papers: May 26,2023
Sovereign Wealth Funds & Pension Funds-Investments into India
New Publication : May 26,2023

Events


Webinars

Generative Artificial Intelligence: Legal, Ethical and Policy Implications
June 01,2023 - June 01,2023

Seminar

Winning Together: Exploring the dynamics of India-Singapore relations for Fund Structuring and Deal Making
April 26,2023 - April 26,2023

This event is over. For event material please click here


Round Table

Investing In Net Zero
July 22,2022 - July 22,2022

This event is over. For event material please click here

News Roundup


News Articles

Naked Licensing in Trademarks
April 14,2023

Quotes

AI holds massive potential for malicious use, but who will be held accountable?
May 25,2023

Newsletters


New Publication

Sovereign Wealth Funds & Pension Funds-Investments into India
May 26,2023

Regulatory Hotline

SEBI Directs Designated Depository Participants to Identify 'Legal Entities' for Foreign Portfolio Investors
May 23,2023

New Publication

Generative AI & Disruption
May 17,2023

  • Disclaimer
  • Content
  • Feedback
  • Walkthrough
  • Subscribe
Nishith Desai Associates@2016 All rights reserved.