We will review the entire policy regime for FIIs, says Bhave

The following are excerpts from Sebi Chairman C B Bhave's discussions with the media after the regulator's board met in Mumbai on Monday.

What's the rationale for the decision to lift P-Note curbs on FIIs?

The framework regulating foreign investors was first put in place in 1992. We have decided to review the entire framework for foreign institutional investors.

You must understand that all decisions have to be taken in a particular context. If you are referring to issues related to the colour of money that is coming in, we have made it mandatory for FIIs issuing P-notes to follow the know-your customer norms.

The reversal has been done after a limited review of the P-note issue by Sebi board. Sebi will put out a consultative paper on the framework governing the participation of FIIs in the Indian securities market, as it needs a comprehensive review.

Why should anyone come directly after this relaxation?

You are assuming that the cost of coming directly (as a registered FII) and indirectly (through P-notes) is the same.

However, P-note holders have discovered that there are counterparty risks also in the entire process. (Several P-note
issuers such as Bear Stearns went bust because of the credit crisis in the US.)

Isn't it unfair on those who have already registered?

We are