Societe Generale SA’s Indian unit was ordered to stop selling or trading offshore derivatives by the nation’s capital markets regulator, which said the bank failed to provide fair and complete information about its trades. . .
The Paris-based company is the second overseas bank to be suspended from trading derivatives by the regulator in just over a month. Barclays Plc suspended sales of its exchange- traded notes linked to Indian stocks following a Dec. 9 order. Both banks gave incorrect details on the sale of so-called participatory notes, the regulator said.
“Societe Generale completely failed in obtaining correct and complete information from the counterparties it deals with,” the regulator’s statement said. “Societe Generale is required to show cause as to why appropriate proceedings including cancellation of its certificate of registration as a foreign institutional investor should not be initiated.”
Forget "Out of Africa". To be kicked out of India is a truly big deal.
Here is a link to the statement of the Indian regulator, SEBI, and one excerpt from page 6, point 13 and then point 17. It appears that SocGen (allegedly) lied to SEBI about the entity Hythe being the ultimate purchaser of the notes rather than what it often acted as, which was merely as a broker.Thus, for these PNs (Participatory Notes), reporting Hythe as the end beneficiary is not true. Further, Regulation 15A of the FII (Foreign Institutional Investor) Regulations lays emphasis on the fact that an FII or sub account can issue ODIs (Offshore Derivative Instruments)/PNs to regulated entities only after compliance with ‘know your client’ norms. As described above, SG has failed to adhere to this norm as it has little or no relevant knowledge of the ultimate beneficiary of the ODIs issued by it. . .
From the above response, it is evident that SG has failed to satisfy the basic tenet of “know your client” compliance when it issued ODIs.
Taking a walk down Memory Lane, we come to the following article from last March, SocGen defends payments from AIG, which begins:
France's third biggest (bank) by market value said on Monday it had acted within its rights to call on AIG for cash. "Societe Generale acted in this matter in full conformity with our counterparty agreements with AIG," it said in a statement.
"Societe Generale issued collateral calls to AIG in accordance with the terms of those agreements as a result of specified credit events at AIG," it said.
"The collateral posted by AIG, and the amounts paid, were fully consistent with the terms of those agreements."
Among European banks, SocGen was the biggest recipient at $11.9 billion, Deutsche Bank AG received $11.8 billion and the UK's Barclays Plc was paid $8.5 billion.
This is an old issue, not a new regulation that has blindsided Big Finance. From IFRAsia last month in SEBI cracks down on Barclays over derivative trades:
This is not the first time that Sebi has issued a derivatives ban against an FII, citing disclosure issues. In May 2005 Sebi suspended UBS for a year from issuing participatory notes following a stock market crash in May 2004. As part of the investigations into the crash, Sebi required UBS to disclose end-beneficiaries on certain transactions. . .
Reporting requirements governing the distribution of Indian equity-linked products by FIIs are strict and extensive. The regulator does not want Indian investors or institutions parking money offshore and reinvesting in India via FIIs and thus bypassing reporting regulations.
And as a coda, for what it may or may not be worth, UBS was involved as a counterparty in the allegedly misrepresented Barclays/SEBI action.
Now SocGen and Barclays which together received $20.4 billion from the people of the United States, are alleged to have committed fraud in the Raj. As the old TV show went, who(m) do you trust? SEBI or Barclays?
Perhaps out there in some parts of BRIC-land, there are some regulatory authorities who just won't stand being played for fools. We shall see.
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