Barclays ODIs open can of worms
Sebi Gives FII A Chance To Submit Its Reply By December 18
BARCLAYS Bank plc, a foreign institutional investor (FII), has been pulled up by capital market regulator Sebi in an order that throws up interesting questions on dealings of another foreign banking group — UBS.
In an order issued late on Wednesday evening, Sebi directed UK-based Barclays Bank plc not to issue or subscribe to fresh offshore derivative instruments (ODIs, also known commonly as participatory notes or PNs), for mis-reporting transactions. All these derivative transactions had the Reliance Communications stock as the underlying connection.
The order, also a show cause notice to Barclays, is effective immediately, and the FII has been given a chance to submit its reply by December 18.
Barclays filings to Sebi showed that it had issued the ODIs to UBS AG.
On being asked to furnish details, Barclays admitted to Sebi that it had inadvertently given the client’s name as UBS AG, when in fact the ODIs had been issued to Hythe Securities. (An internet search describes Hythe as a London-based broker).
The ODIs were then onward issued to another entity called Pluri Emerging Markets Growth Fund.
The Sebi order says that Barclays was aware that the ODIs had been issued to Pluri, but did not disclose this in its filings to the regulator.
Curiously, Pluri is at the centre of another controversy.
Barclays has also ‘violated FII regulations’
THE controversy involves siphoning of funds from the UBS London branch accounts of two ADAG firms — Reliance Natural Resources and Reliance Energy — and diverting that money into Indian equities.
Overdrafts had been fraudulently drawn against these accounts in order to route funds through a number of diamond traders.
Thus the entity funded by the Swiss bank to buy Indian stocks happens to be the same one to which PNs were issued by Barclays in a circuitous route.
Only further investigations can reveal whether this is more than a coincidence. What's apparent is that if Barclay's — whose banking arm is the private wealth manager for many rich Indians — had not been forced to disclose the names of Hythe and Pluri, the UBS connection would never have surfaced.
A report by the Enforcement Directorate last year, which was investigating the matter, says: “The said diamond dealers claim to have no concern whatsoever with these unauthorised transactions routed through their accounts. It is suspected that funds into the Indian stock market have been moved through the fund manager M/s Pluri Emerging Companies PCC Cell Cell E Growth Fund, by way of subscripttion to participatory notes issued by various FIIs...”
Sebi, in its order, has charged Barclays of not only failing to provide true and complete details of the ODI activity undertaken by it but also prima facie violating the provisions of FII Regulations by furnishing false and incorrect information to Sebi.
“Barclays needs to be restrained in its activity in dealing with ODIs till such time as Sebi is satisfied that Barclays can provide true, accurate and a complete picture of its ODI transactions as envisaged by the FII regulations and the reporting requirements therein,” the Sebi order said.
It further said that the British banking group has “not only failed to provide true, fair and complete details of the ODI activity undertaken by it but also prima facie violated the provisions of FII Regulations by furnishing false and incorrect information to Sebi.”
Source: ET
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