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India: Sebi’s new rules encourage managers

Concerns about lack of transparency force regulator to make participants register directly.

A relaxation of regulations by the Securities and Exchange Board of India is spurring an influx of managers in the region. The capital markets regulator, which has been biased against hedge funds for some time, has now changed tack to force hedge funds to register directly as foreign institutional investors (FIIs). Although some press reports claim this will make it more difficult for hedge funds to open for business, managers find the news encouraging.

"Up until very recently, hedge funds were not allowed to be registered in India. They were only able to buy and sell shares by using participatory notes, a derivative instrument traded with large FIIs such as the global investment banks," says Rob Rahbari, managing director at RAS Capital Management, a fund of funds firm focusing on India.

But concerns about the lack of transparency this was causing, and the inability to know who exactly was influencing the market, forced Sebi to change regulations to make all foreign market participants register as FIIs.

"It is a good long-term development," says Rahbari. "The money coming into India will be longer-term money and it should make the markets there less volatile."

Although returns from investing in India’s markets have been very impressive, volatility has been extremely high.

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