Rampaging bulls were stopped in their tracks by regulator Securities and Exchange Board of India’s proposal to clamp down on the opaque participatory note route used by foreign investors to invest in Indian stocks. After the initial panic and crash, the market staged a solid rebound from the lower level and cut losses with vengeance following assurances from Finance Minister P Chidambaram and Sebi chairman M Damodaran.

Sebi’s proposals — announced on Tuesday after market hours — to restrict foreign inflows through the PNs created havoc on Dalal Street this morning. Trading was halted within minutes of opening, as market-wide circuit filters were triggered by a steep fall. When trading was halted at 9.57 am for one hour, the Sensex was down 1, 743.96 points, or 9.15 per cent, at 17,307.90.

The market started recovering after Chidambaram said there was no proposal to ban participatory notes. “What has been done is to moderate capital flows, which have become very copious. It is a culmination of long discussions between SEBI, RBI and government,” Chidambaram said minutes before trading resumed.

On the other hand, SEBI said: “There is no proposal to bar ODI contract expiring this month or in the following months, being renewed, provided the renewals do not go beyond 18 months.”

Making it clear that Sebi would welcome investment through the “front door”, Sebi chairman Damodaran assured that SEBI would expedite registration of new FIIs by simplifying the registration process and procedure. As of now, a major chunk of FII money is coming through the PN route where identity of investors and source of funds are not clear.

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