SEBI's PN Boruhaha Part Deux.

It has become fashionable for the securities market watchdog to raise the scepter of PNs from time to time. Maybe SEBI has run out to things to keep itself amused, so it has embarked on this venture to discipline FII's issuing PNs. Goldman Sachs is most definitely tickled pink by all of this and so is Citibank for that matter. Its (Goldman’s) total net revenues for FY 2005 were $24.782 billion. The fine of Rs.1 crore (approx $ 250,000) is to Goldman Sachs the equivalent of pocket change to you and me. But wait this gets better. Goldman’s pre tax earnings for 2005 were about $8.2 billion, as against the total FII inflows in 2005 (India) for $10.5 billion. I can imagine Goldman cowering before the wrath of SEBI can you?

SEBI is no stranger to making an fool of itself with respect to PNs; the case of UBS Securities does come to mind. SEBI is totally kicking ass and taking names as you can see:

"The 60-page order (SEBI's order) itself is an odd mix of innuendo and legal claims, endowed with more of an amateurish literary flavor than the professional competence of a legal department............... Instead, the SEBI order engages in elaborate innuendo that UBS tried to manipulate the market. SEBI then chickens out and does not actually charge UBS with market manipulation. The actual misdeed with which UBS is charged is delay in giving information."

It’s an open secret that a good portion of the so called FII inflow is dubious in origin. Infact a PN with its lack of transparency an ideal vehicle to launder ill gotten wealth. The final beneficiaries of a PN are hidden behind layers of shell companies and entities making it impossible to pin down the source of the money. Almost every one from promoters to politicians have money stashed abroad that is coming in through PNs. Further measures to curb the issuances of PNs and attempts to regulate them will yield precisely nothing. There is far too much at stake. This also the reason why the Finance Ministry is batting so aggressively on behalf of PNs. To further underline the hold of PNs on the markets as much has 52% of fresh FII inflows are through this route. So any attempts to curb this mode of investment in Indian markets will result in the markets imploding to the size not much larger that this full stop "." here.

Plans are afoot to bring about greater disclosure and transparency in PNs. It’s safe to assume that this will receive a quiet burial a few of months from now.