New Delhi: The Securities and Exchange Board of India (SEBI) has announced that it is working with other regulatory authorities in order to widen the bond markets. SEBI also said that the restriction on foreign contribution will be detached as the market grows.

At the Fortune Global Forum 2007, Securities and Exchange Board of India (Sebi) Chairman M Damodaran said, “There are limits on foreign participation in the bond markets. You will see that moving away as the market develops.”

In the bond markets, there are restrictions on FII investments, and specialists said that the capital enhancement would offer the market with the required fluidity.

Under current regulations, the capital is pegged at $4.7 billion, out of which $3.2 billion can be invested into government securities and $1.5 billion in corporate bonds.

The second Tarapore committee on Fuller Capital Account Convertibility and the High-Powered Committee statement on declaring Mumbai as a global financial hub have suggested scrapping of caps on FII investment in rupee-denominated debt.

But, even if the FII investment cap has been brought up eventually, the net inflow of FII money is under the limit.

Later Mr. Damodaran told news persons, “We are not the ones who will raise the limits. Other people will raise them.”

He also dropped a clue at beginning of fresh products in the derivatives market but did not give detailed information.

He said that SEBI’s decision on participatory notes (PNs) did not occur unexpectedly. He commented that in February 2004, a SEBI guideline on FIIs had stated that PNs issuance to bodies that were unstructured before that time should be aroused five years down the line.  

“We have been accused of, I would say, unfairly doing something too suddenly, shocking the market. I don’t think it (action on PNs) is a question of addressing hot money inflow into the country and what might happen should all of them leave one morning. What we are attempting to do is to give India and the world a market that people understand better, that people feel more comfortable investing in, that has more products going forward, better access for all categories of investment, more transparency,” he said.

On FIIs sub-accounts, he said they were projected to raise direct investment. “We found they have become instruments to facilitate others, bringing them in a non-transparent manner,” he said.