WEST PALM BEACH, FL (HEDGECO.NET) – The study group on hedge funds created by the Securities and Exchange Board of India [SEBI] has recommended that hedge funds should be allowed to operate in India.Such a recommendation was made on the condition that hedge funds must also follow other rules and regulations that govern the operation of such funds as provided in the Foreign InstitutionalInvestors [FII] provision.
According to the study group, hedge funds should be afforded a limited opportunity to invest in the Indian Equity markets only. However, hedge funds, according to such recommendation, should still not be allowed to invest in commodity and currency markets in India.
There will be additional limitation on hedge funds; for instance they will not be allowed to engage in the short-selling strategy in the Indian stock markets. According to the study, all transactions must have a delivery dimension. SEBI continues to consider the issue of allowing hedge funds in India to register with the SEBI as FII�s such requirement will enable the Indian financial market regulator to scrutinize their activities.
SEBI has released a draft regulation for hedge funds, and according to that document, at least 20 percent of the hedge funds seeking to register in the country as foreign institutional investors should be contributed by investment groups such as pension funds, university funds, charitable trusts, endowments, banks and insurance establishments. According to the regulator, the presence of such groups will ensure �better governance on the part of the fund manager and fund administrators.� Further, �institutional investors may help fund managers to take a long term perspective of the market,� according to SEBI.
SEBI has not yet ruled on the issue, according to the regulator. Such a decision will be made following consultations with industry experts and other market participants. It is still unclear when such a decision will be handed down; meanwhile hedge funds have invested about US $1.8 billion in the Indian markets through participatory notes.
Paul Oranika
Editor-in-Chief
HedgeCo.Net
Email: [email protected]
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