Page 74 - DMGT512_FINANCIAL_INSTITUTIONS_AND_SERVICES

Unit 5: Securities and Exchange Board of India

Notes
In case an FII happens to be an MCV or has an equivalent structure, it must give an
undertaking that common portfolios shall be allocated across various share classes and it
shall be broad-based.

Alternatively, it must give an undertaking that if it has segregated portfolios, then each
share class shall satisfy the broad-based criteria; that in case of change in structure of
classes of shares, prior SEBI approval shall be sought.

The declarations and undertakings shall be made by all FIIs that are registered with SEBI
as on April 7, as well as all fresh applicants.
Barclays and Societe General Cases

SEBI had come across violations of FII regulations by Barclays and Societe General while
issuing offshore derivative instruments to their clients, which may have prompted the
regulator to issue these directives, experts familiar with the matter said.
From the reports submitted by Barclays (FII) between January 2006 and January 2008 in
SEBI cases against them, SEBI observed that Barclays had issued Offshore Derivative
Instruments in 2006 to UBS AG with Reliance Communications Ltd shares as underlying.
When the regulator sought documents in support of these ODIs, the FII had reverted that
it had identified some discrepancies and it was reviewing them.
Later Barclays told SEBI that the counterparty for the ODI transactions was not UBS AG but
Hythe Securities Ltd, an entity that was not part of any periodical submissions made by
Barclays or in the specific information submitted to SEBI's query with reference to
underlying shares of Reliance Communications.
SEBI said the ODIs under reference were issued to Hythe and that they were onward issued
to 'Pluri Emerging Companies PCC Cell E Emerging Markets Growth Fund', which the
FII said was regulated by the Financial Services Authority in the UK. SEBI's case against
Societe General was along similar lines; in fact the Hythe Securities was one of the entities
involved in this case too.
Question

Discuss the role of SEBI in regulating the functioning of FII.
Source: http://www.thehindubusinessline.in

5.6 Commodity Exchange

A commodity exchange is a place where various commodities and derivatives are bought and
sold. Commodities exchanges usually trade on commodity futures.

Reasons for Trading in Commodity Exchanges

1. Hedging: Commodities are subject to constant and extreme price fluctuations. Traders are
the worst sufferers of the price risk. Forward contracts have come to their rescue.
A forward contract requires a buyer and a seller to take and make a delivery of a definite
quantity of a particular commodity at a future specified date. Such contracts are traded on
an exchange, which provides guarantee for all futures dealings, and parties can "hedge" at
suitable levels. Hedging lessens risk since it involves the purchase or sale of a commodity
with the intention of counterbalancing the profit or loss of another investment. Therefore,
any loss on the previous investment will be hedged, or compensated, by a matching profit
from the hedging instrument.

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