Sun, Sep 10, 2006 - Page 11 News List

India fines Goldman for breaking securities rules

KNUCKLE-RAPPING The investment bank was slapped with a US$216,000 fine for playing in India's stock market using a type of account barred by rules

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Goldman Sachs Group Inc, the world's most profitable investment bank, was fined 10 million rupees (US$216,268) for violating India's securities rules, the regulator for the nation's capital markets said.

Goldman Sachs Investment (Mauritius) Ltd broke domestic rules by allowing an overseas corporate body to invest in the Indian stock market through an account of an overseas institutional investor, the Securities & Exchange Board of India said on its Web site late on Friday.

A unit of Goldman Sachs Investment (Mauritius) issued off-shore derivative instruments to Magnus Capital Corp, an overseas corporate body, violating rules that bar them from issuing these products to Indian residents, non-resident Indians, persons of Indian origin and overseas corporate bodies, the regulator said in its order on Friday. Goldman submitted details to the regulator on the transaction on Aug. 15, 2003, it said.

Goldman, which in March ended a decade-long venture with Kotak Mahindra Bank Ltd, an Indian lender, received approval from the Indian government in June to start its own fully owned non-bank finance company in the country. The New York-based firm said it will invest US$50 million to set up its Indian venture.

Citigroup Inc, the world's largest financial services company, was last month fined 10 million rupees by the regulator for violating securities rules against Magnus Capital. It also imposed a monthlong suspension on the operations of the Indian brokerage unit of Credit Suisse Group, Switzerland's second-biggest bank, for breaching regulations relating to stock trades.

Overseas investors can trade in Indian markets by registering as a foreign institutional investor, or FII, or buying offshore participatory notes issued by an FII. The equity-linked notes are the only instruments that overseas investors can use to invest in India if they are not directly registered with the stock regulator.

India cracked down on monitoring overseas corporate bodies after a securities scandal in 2001, which resulted in some companies hiding their identities and acting through sub-accounts of foreign institutional investors. Some firms created an "artificial market and volumes" by taking a concentrated position in some stocks, the regulator said in its order.

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