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All clear for stock-play vehicle

New Delhi, May 18: Capital market regulator M. Damodaran today said there were no plans to ban participatory notes ' the derivative instrument that is reported to have been misused by a few entities to engineer the market meltdown last May.

“We have no plans to ban participatory notes,” Damodaran told reporters on the sidelines of CII’s annual national conference here.

On Tuesday, the Securities and Exchange Board of India had barred UBS from issuing offshore derivatives for a year. The action was taken because UBS and its associates were suspected to have sparked off sudden selling pressure in the market on May 17 last year.

UBS is one of several entities whose transactions are being investigated to uncover a conspiracy behind the market mayhem. However, Damodaran dismissed as pure speculation media reports of a “spate of convictions in the pipeline” against FIIs for misusing the instrument.

Sebi is believed to be investigating 11 other entities that might have been responsible for triggering the ‘Black Monday’ crash, but Damodaran refused to name them.

“We will seek explanations from the FIIs. If their response is satisfactory, it would be incorrect to spell out their names,” Damodaran said.

“I can’t say whether we will find their explanations satisfactory. And it is not right to speculate about the actions that we may take if we find them wanting,” he said.

After issuing showcause notices to 12 entities, the regulator has so far taken action only against UBS Securities Asia. The regulator maintains that the firm has refused to furnish relevant details about its clients to the market regulator. This was seen as a serious breach.

P. Chidambaram, who took charge as the finance minister after the UPA government came to power last year, had promised to take strict action against those who were behind the market crash.

Director norms

Damodaran told industrialists at the CII conclave that he expected India Inc to fully comply with Clause 49 of the listing agreement by December 31. The clause requires a company to ensure that at least 50 per cent of its board comprises independent directors. The Sebi chief said the deadline had been relaxed twice and put India Inc on notice that they ought not to expect another extension.

Damodaran said the provision relating to independent directors was the bare minimum required to create an environment for proper corporate governance even as he urged the corporate chieftains to rise above the ‘matrix of maths’ to truly push for good governance.

“Clause 49 is the minimum standard. You might comply with that and yet not achieve corporate governance,” he said.

Stating that proper constitution of the board of a company will get 80 per cent of the job done, he said, “Companies which perform well clearly don’t have problems with various stakeholders".

Reliance tangle

Damodaran said Sebi would take appropriate action on the complaints filed by Anil Ambani, vice-chairman and managing director of Reliance Industries.

“We have received certain letters from the company's vice-chairman and managing director. We are acting on those letters... We will do whatever is necessary,” he told reporters. Declining to divulge the content of these letters, Damodaran said, “We know about those issues and we know how to address them. We have started looking at them.”

When asked what action the market regulator could take, he said, “Sebi will take action depending on the merits of the circumstances."

Responding to a question on the delisting norms for thinly-traded companies and its effect on investors, he said, "We are working on it and will have good news for you in about six months’ time”.

Several industrialists said the quarterly reports had turned board meetings into a bean-counting exercise and the directors were unable to find the time to take strategic decisions. Responding to this, Damodaran said the investors had got used to quarterly reporting of financial performance and there was no way that it could be rolled back.

New CII chief

ITC chairman Y. C. Deveshwar today took over as the president of CII from Sunil Kant Munjal. Ashok Leyland MD R. Seshasayee will be the chamber's new vice-president.

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