ICI Highlights Issues of Concern for Institutional Investors in India

Washington, DC, August 1, 2006 - The Institute highlighted four areas of concern for foreign institutional investors in India in a recent letter to India's Securities Exchange Board.

Background
Earlier this year, the Securities and Exchange Board of India (SEBI) encouraged ICI to submit a letter describing some of the key issues that foreign institutional investors (FIIs) face investing in India. The Institute's letter continues a dialogue with SEBI that began in late 2002 about ways to streamline and improve the investing environment in India for FIIs.

ICI Position
The four areas of continuing concern to FIIs discussed in ICI's letter include:

· The application of new anti-money laundering (AML) rules to FIIs. New AML rules in India require banking companies, financial institutions, and other "intermediaries" to perform prescribed AML functions, including filing suspicious transaction reports and verifying the identity of clients. ICI urges SEBI to reconsider direct application of the new AML rules to FIIs, and instead recommend that SEBI treat FIIs as clients of local firms rather than intermediaries for purposes of India's AML rules.

· The recent increases in the fees for FII licenses and FII subaccounts. On June 26, 2006, SEBI effectively tripled the fees FIIs must pay to invest in India by increasing FII license fees and decreasing the renewal cycle to three years. In its letter, ICI strongly reiterates its long-standing recommendation that FII fees be eliminated or, at the very least, set at a level commensurate with the costs of processing the FII applications.

· The daily disclosure of large trades. SEBI policy requires brokers to disclose the details of certain large trades to the stock exchanges, and requires the stock exchanges to disseminate those details to the general public on their websites the same day. ICI expresses its continuing concern that this disclosure has the potential to harm institutional investors such as FIIs and reiterates its recommendation that SEBI reconsider the application of the rule to institutional investors and seek a more tailored approach to the disclosure of bulk trades, at least with respect to the transactions executed on an exchange.

· The high rate of "close-outs" in the clearance and settlement of trades. ICI notes that there are relatively high rates of partial settlement in the Indian markets, resulting in a "close-out" process that presents a number of trading, tax, and recordkeeping problems for institutional investors. To alleviate these problems, ICI recommends that SEBI require the clearinghouse to facilitate the fulfillment of trade orders through the use of a mandatory securities borrowing and lending program.

The Institute will follow up on these issues with SEBI staff over the coming months.

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