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Tuesday, October 9, 2007

Corporate governance,PNs & sub-accounts

Many of u have asked to explain these important aspects in detail.I have covered Corporate governance which is one of the most important point that people look at,corporate governance of companies.There has been robust liquidity by the FIIs in our market,are they real or??????????????well check our the latter,PNs & sub-accounts for that.Hope one wud get beneffited.

What is corporate governance?

Ans)Now coming to the listed company, if they have paid-up capital of Rs 3 crore plus, then they have to give a corporate governance report. This report contains various details like, how many board meetings were held during the year, what is the composition of directors, what remuneration they have been paid, when were the last three general meetings of the company held, what committees were formed by the company etc. Three committees are mandatory, these are the audit committee, remuneration committee and investors grievances committee. Then, they need to give the price movement of shares on any one stock exchange, in the last 12 months, as also the shareholding pattern. What needs to be highlighted is, as per the number of shares held, how many shares are dematted. So this entirely covers secretarial information of the company.

What are PNs & sub-accounts?.

Ans)Participatory notes and sub-accounts are two entry routes for suspect funds. Sub-accounts are generally foreign private companies and individuals on whose behalf a FII is permitted (under Sebi rules) to invest and who would otherwise not be eligible to register asFIIs. Participatory notes are contract notes through which an FII invests in, say, Indian equities, on its proprietary account; but the purchase is funded by an overseas investor on whose behalf the investment is made. The expert group report admitted that "this helps in keeping the investor’s name anonymous" and that such investors "prefer to avoid making disclosures required by various regulators". From data that Sebi shared with the group (but not with the investing public) there are ominous signs visible.(See sideshow: The Participatory Route). Almost half of all FII inflows appear to come through the PN route.

Yet the expert group did not ban the use of PNs or sub-accounts byFIIs, though the Reserve Bank held that the issue of PNs should not be permitted. In his dissent note, the RBI representative on the group said, "Trading of these PNs will lead to multi-layering, which will make it difficult to identify the ultimate holder ofPNs. Both conceptually and in practice, restriction on suspicious flows enhance the reputation of markets and lead to healthy flows."

In fact, the RBI was also of the view that sub-accounts should not exist as a separate class of investors. But the rest of the expert group–two finance ministry representatives and one from Sebi–did not endorse the RBI’s views. And so PNs and FII sub-accounts continue to play a big part in FII inflows.

I can be recahed

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