01.03.2012
By Terry Flanagan

Exchanges Invite Foreign Investors

Trading platforms will look to open their doors to foreign investors as a way to boost liquidity and reduce volatility amid an unstable economic landscape.

India’s Ministry of Finance announced that it will allow “qualified foreign investors” to directly invest in the Indian equity market in order to “widen the class of investors, attract more foreign funds, reduce market volatility, and deepen the Indian capital markets,” to take effect starting Jan. 15. India has been under pressure to attract overseas capital due to potential difficulties in balance of payments, and therefore is now lifting previous restrictions preventing foreigners from investing in the Indian equity market.

The decision comes as the Indian economy has been on the downturn. India’s prime minister, Manmohan Singh said, “I am concerned about fiscal stability in future because our fiscal deficit has worsened in the past three years,” in an address to the nation.

Under the current system, the only foreign investors allowed to trade Indian equities are institutions and non-resident Indian nationals. Under this arrangement, there are a large number of individual foreign nationals who have a desire to invest in Indian equities, but do not have the access to do so. Those who are considered qualified foreign investors under the new system will include individuals, groups or associations that comply with certain requirements. Qualified foreign investors, or QFIs, are currently able to only invest in local mutual funds.

India is facing pressure to attract foreign investment after a year which saw its benchmark Sensex index fall 25%, among the worst globally.

Saudi Arabia’s Capital Market Authority is also looking to open its market to foreign investors. The new guidelines and regulations are expected to take effect by the end of the first quarter.

Tadawul is the only stock exchange in Saudi Arabia. It is overseen by the Capital Market Authority. Tadawul was introduced in 2001 as the successor to the 11 year old Electronic Securities Information System.

However, despite allowing foreign investors to trade its securities, the Saudi authorities will not allow any single entity to hold more than 5% of a stock’s issued capital, and will also cap the total foreign investment in a listed firm at 49%.

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