[The following post is contributed by Mandar Kagade, who is a Policy Analyst at the Bharti Institute of Public Policy, Indian School of Business] The United States Congress recently passed the Consolidated and Further Continuing Appropriations Act, 2015 that made headlines for reasons not at all related to appropriations; it was in the news rather for including provisions that repealed the so...
The Exportation of Indian Capital Markets
Reuters has a report indicating that the volume of trading in Indian derivatives in the Singapore market is almost as robust as that in the Indian market. This suggests that the Indian capital markets are being exported overseas. Investors are able to enjoy the investment benefits in Indian underlying assets or investments without actually investing in India. Usually, this phenomenon occurs for...
Willful Defaulters and Derivatives Transactions
The Supreme Court was recently confronted with a question as to whether a company that had entered into a derivatives transaction with a bank could be categorized as a “willful defaulter” under the Reserve Bank of India’s Master Circular on Willful Defaulters on account of non-performance of payment obligations. More specifically, the question was whether a bank could be treated as a “lender” in...
Australian Court on Rating Complex Financial Instruments
The Federal Court of Australia has delivered an important ruling that pertains to the liability of credit rating agencies. In Bathurst Regional Council v. Local Government Financial Services Pty Ltd, the court found that Standard & Poors (S&P) was liable to several local councils in Australia for a AAA rating provided in connection with their investment in complex financial instruments...
Black Money: Corporate Entities and Securities Markets
The Government yesterday tabled its White Paper on Black Money in Parliament. Billed as the first document to comprehensively tackle the issue, it cites various studies and is replete with data. However, it has already been subjected to criticism from various quarters owing to the lack of details and clarity in solutions to deal with the issue. This post, however, briefly touches upon the role of...
Enforceability of Put and Call Options in India
I have posted a working paper tentatively titled Investment Agreements in India: Is There an ‘Option’?, the abstract of which is as follows: Put and call options are ubiquitous in modern investment agreements, such as those involving joint ventures as well as private equity and venture capital investments. The enforceability of put and call options in Indian companies has been the...
Regulating Offshore Derivative Instruments
Over the last few years, SEBI has been adopting various strategies to regulate the use of offshore derivative instruments (ODIs) such as participatory notes that enable foreign investors to participate in the Indian markets without actually owning the underlying securities. The strategies include restricting the use of ODIs, and also requiring the application of know-your-client norms (KYC) by...
RBI’s Draft Guidelines on CDS
Following its draft report released in August 2010, the Reserve Bank of India (RBI) has issued draft guidelines on credit default swaps (CDSs) for corporate bonds. One of the principal objectives of this effort is to boost the corporate bond market. As RBI notes: The objective of introducing Credit Default Swaps (CDS) on corporate bonds is to provide market participants a tool to transfer and...
Barclays Order: ODI Restrictions Lifted by SEBI
In December 2009, we had discussed SEBI’s order whereby Barclays was found to have failed in complying with certain disclosure norms while issuing offshore derivative instruments (ODIs) under the SEBI (Foreign Institutional Investors) Regulations, 1995. For this, SEBI had prohibited Barclays from issuing, subscribing or otherwise transacting in any ODIs until reporting systems are put in place to...
Further Measures to Boost Infrastructure Financing
In continuation of previous measures, the Reserve Bank of India (RBI) has taken additional steps to enable financing in the infrastructure sector. First, the proposed introduction of credit default swaps on corporate bonds (discussed here) covers corporate bonds issued by Special Purpose Vehicles (SPV) of rated infrastructure companies “keeping in view the need for development of the...
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