PwC's Managing upstream risk: Regulatory reform review - An asian perspective November 2013 | Page 19

• o prevent domination by
T
foreign banks, restrictions
would be placed on further
entry of new WOSs of foreign
banks/ capital infusion, when
the capital and reserves of
the WOSs and foreign bank
branches in India exceed 20 per
cent of the capital and reserves
of the banking system.
• Corporate Governance: i)
not less than two-thirds of
the directors should be nonexecutive directors; ii) a
minimum of one-third of the
directors should be independent
of the management of the
subsidiary in India, its parent
or associates; and iii) not less
than 50 per cent of the directors
should be Indian nationals /
NRIs/ PIOs subject to the
condition that not less than onethird of the directors are Indian
nationals resident in India.

The policy incentivises the existing
foreign bank branches that operate
within the framework of India’s
commitment to the WTO to convert
into WOSs due to the attractiveness
of near national treatment. The
issue of permitting WOSs to enter
into M&A transactions with any
private sector bank in India subject
to the overall investment limit of
74 per cent would be considered
after a review is made with regard
to the extent of penetration of
foreign investment in Indian banks
and functioning of foreign banks
(branch mode and WOS).

Banking

2.13 Short Selling

South Korea

South Korea’s SFC will lift a five-year ban
on short-selling of financial shares from 13
November 2013 as it seeks to boost stock market
trading at a time when foreign interest in local
shares dwindles. The move will allow covered
short selling--short sales of borrowed shares-only, while maintaining the prohibition on
naked short sales.

The authorities banned short selling of all
shares in 2008 as the global financial crisis
roiled Asia’s fourth-largest economy and its
financial markets, but lifted the ban on covered
shorts on non-financial shares in June 2009.
Short selling of non-financial shares was
temporarily banned again for another three
months from August 2011 during the turmoil
from the euro zone crisis. According to the
regulator, as short selling remained banned,
trades of financial shares, which account for
12 per cent of total market capitalisation,
have been weak, harming the stock market’s
efficiency and the daily average trading volume
of financial shares fell to 352.5 billion won
($329 million) in the first half of this year, from
935.2 billion won over 2008.

While easing the restrictions on short selling
in the latest move, the regulator aims to curb
speculation in the domestic stock market
by strengthening short sellers’ reporting
requirements. The move is in line with other
global financial markets where regulators are
beefing up short sellers’ reporting requirements.

| Regulatory Reform Review

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