The Securities and Exchange Board of India on Tuesday asked foreign institutional investors operating in India to disclose on a fortnightly basis details of participatory notes issued by them to overseas investors such as hedge funds.

The market regulator has also asked foreign funds to furnish details of all outstanding instruments issued, as on August 15, 2003.

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Sebi said, "With a view to monitoring the investment by FIIs through these instruments, it has been decided to revise the format for reporting the issue and redemption of them (PNs)."

The market regulator has also given a format for the data to be furnished by the funds.

This follows a concern in the markets that a lot of hedge funds are operating in the domestic markets through the PN route.

Sebi has also asked for specific names and locations of the persons to whom the offshore instruments are issued. It also wants FIIs to disclose the type of investors -- whether they are hedge funds, corporates or pension fund.

Sebi has also called upon registered FIIs to mention the quantity and value of offshore instruments and the underlying Indian securities on the basis of which these synthetic securities are created.

FIIs issue instruments such as PNs, equity-linked notes, capped-return notes, participatory return notes, investment notes and other such synthetic instruments, which basically are in the nature of receipts to overseas investors, indicating constructive ownership of some underlying shares in India.

This is reportedly done to avoid the stringent regulatory norms that apply to all foreign portfolio investors.

Since the foreign money does not enter Indian shores, it is not reported to any Indian regulatory authority.

But both the equity markets regulator and the markets are concerned over the ownership of such instruments.

Specifically, hedge funds are particularly feared in the markets as they are typically in the habit of entering and exiting in one gush, often destabilising the market equilibrium.

Market estimates put the amount of foreign investments through the PN route at almost $1 billion, half the amount of the regular investments made by registered FIIs.

Under the lens

• Foreign funds to furnish details of all outstanding instruments issued as on August 15
• Format for reporting issue and redemption of participatory notes will be reversed
• Format also given for data to be furnished by funds
• Hedge funds suspected to be operating in the markets through the PN route