In a conference call with investors, Chairman M Damodaran said, Sebi will allow so-called sub accounts of overseas brokers to apply for full license and will process the application in about a week.
However, other unregistered investors using derivatives to invest in stocks will have to unwind in 18 months, he observed.

Sebi proposals on October 16 to curb offshore derivatives forced stock markets to halt trading and ended eight straight weeks of gains on the key Sensitive Index. Sebi will meet on October 25 to set rules to curb record inflows that have driven the rupee to a 9-1/2 year high. Sebi is trying to limit $88 billion of investments made by unregistered investors, including hedge funds, in Indian stocks. The Centre does not permit hedge funds to directly buy the equities, so they use the derivatives to invest.

Apply for license
Sub accounts of brokers registered in India will be allowed to apply for a license if these are used for their own trading, Mr Damadoran said.

Sebi, last week, had suggested that foreign institutional investors shouldn’t be allowed to issue or renew offshore derivative instruments, known as participatory notes, linked to futures and options and should exit existing ones in next 18 months. Sebi wants to limit issuance of additional participatory notes, or P-notes, and have proposed to cap the amount that can be issued by each broker. Sebi proposes to set a limit of 40 per cent of assets under custody for the issuance of new notes. Brokers who exceed the limit will need to pare their outstanding notes.

Brokers who have issued less than the limit may do so at an incremental rate of 5 per cent of their assets under custody. Offshore investors have bought a record $19 billion of Indian securities this year, more than double last year’s $8.9 billion.

More than half has been invested in the month since the Fed’s rate cut.  Meanwhile, Sebi cleared 16 applications of foreign institutional investors pending as on October 17, 2007.