MONITORING OF FOREIGN INVESTORS IN REAL TIME

MONITORING OF FOREIGN INVESTORS IN REAL TIME

The crack in foreign shareholding cap in HDFC Bank, in recent times, has led to talks between SEBI and RBI.

Shocked by a recent breach of foreign ownership limit at HDFC Bank, regulators and intermediaries are facing the question of monitoring foreign investors in real time. SEBI and RBI held talks on exchange of data to track real-time behaviour of foreign investors.  The crux of the issue is as under:

  • It is understood that the Securities and Exchange of India (Sebi) and the Reserve Bank of India (RBI) met last week to discuss the February 17 breach at HDFC Bank.
  • They also discussed whether new systems can be installed to observe foreign shareholdings and avoid breaches of investment limits.
  • Presently, 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 real time ceiling.
  • The alarm goes off after market hours only; intraday, it never rings. Hence, now has arisen the need for real-time monitoring.
  • The present requirement is a need for real-time data integration between depositories, custodians,  and stock exchanges.  Once the limit is reached, the stock exchange should be able to automatically block trades which would take care of the problem and the need for the regulator to step in would not arise.

WHAT IS PROPSED NOW?

  • Experts say stocks with high foreign investment need better monitoring to avoid HDFC Bank-like breach.
  • Thus it is proposed to monito around top 50 or top 100 stocks, for which foreign demand is highest.
  • Regulators or Brokers must be provided with the data on ownership limits which would help in blocking the real time trade.
  • Now, depositories are able to collate data and publish it which is available to other intermediaries. However, they will not be able to do much on intra-day monitoring.  It would be challenge to regulate the fluctuations when ownership limit could be breached at 10 am and then fall below the threshold after two hours.  Annulment of trade should be the last effort is the feeling of a section of people.
  • It is advised that Stock exchanges should testify 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.

Author: Admin Bankedge

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