Derivatives trading lands Barclays with Indian ban

India's financial watchdog has suspended Barclays from offering derivatives that allow foreign investors to trade in Indian shares.

The Securities & Exchange Board of India (Sebi) said it had barred Barclays from offering offshore derivatives because of a failure to provide a "true and accurate picture of transactions". It also said that the bank had "violated the provisions of FII Regulations by furnishing false and incorrect information to Sebi".

The regulator acted as a result of trading through "participatory notes" in Reliance Communications, the mobile telephone operator that is controlled by the Indian billionaire Anil Ambani.

Such notes are used by many investors to gain exposure to Indian stocks without having to register with Sebi. However, the regulator does require that it is kept informed of the owners of such derivatives.

Barclays has been given until 18 December to respond to the ban. The bank has also been told that it must appoint an auditor "of international standing" to approve its internal systems.

The Sebi said that Barclays' alleged misdemeanours occurred between January 2006 and January 2008.

Sebi tightened its rules on the instruments following the collapse of Lehman Brothers, the US investment bank, which led to a huge outflow of capital from the country from foreign investors, many of whom had been making use of the notes.

Yesterday, the bank said: "Barclays confirms that it received notification from the Sebi of a 'Show Clause Notice' on 9 December.

"Since receiving Sebi's original email request of 24 September 2009, we have been and will continue to co-operate fully with Sebi as it examines certain offshore derivative transactions."