A multi-agency team will soon begin its probe to check suspicious transactions into country's financial market. Official sources said the team, comprising sleuths from Intelligence Bureau and Central Economic Intelligence Bureau among others will look into various aspects of suspicious transactions and ways to check it.
The move comes in the wake of reports of instances of routing of terror funds in the country's stock market which were tracked by intelligence agencies. The sources cited misuse of Participatory Note (PN), a derivative instrument issued in foreign jurisdiction by a foreign institutional investor against underlying Indian securities, by some people to route illegal money into the country's financial system.
They said the quantum of possible suspected transactions in the stock market is not worrying and many steps were being taken by the Securities and Exchange Board of India (SEBI) to ensure safe and transparent trading. SEBI keeps a tab on suspicious transactions through its IMSS (Integrated Market Surveillance System) while stock exchanges are also required to keep the market regulator updated on the activities observed through their own surveillance and compliance systems.
If something suspicious is found by SEBI and the stock exchanges, a further inquiry is conducted while other investigating and enforcement agencies are involved as per the demand of specific cases.
Officials said the probe will also look into the lacunae in present norms for Know Your Customers (KYC) procedures, a mandatory requirement to ensure transparent trading.
According to a Finance Ministry report, PNs are traded overseas outside the direct purview of Securities SEBI surveillance, often raising apprehensions about the beneficial ownership and the nature of funds invested in these instruments.
"Concerns have been raised that some of the money coming into the market via PNs could be the unaccounted wealth camouflaged under the guise of FII investment," it has said. Sources said a move is also being considered to ensure that details of beneficial owners of PNs could be known.
At present, mandatory reporting requirements for PNs do not capture details of owners, thus making the instrument vulnerable to misuse. "An investor in PNs does not hold the Indian securities in her or his own name. These are legally held by FIIs, but she/he derives economic benefits from fluctuation in prices of Indian securities, as also dividends and capital gains through specifically designed contracts.
"Thus, through the instrument of PNs, investment can be made in Indian securities market by those investors who do not wish to be regulated by Indian regulators due to a variety of reasons such as not meeting the eligibility criteria for investment in Indian securities market, cost and time considerations or the desire to keep their identity anonymous...," according to Finance Ministry's White Paper on black money.