The Securities and Exchange Board of India is having a tough time enforcing its circular on foreign institutional investors disclosing names of its clients to whom they issue participatory issues.

In the aftermath of the Ketan Parekh-related market volatility in March 2001 and rampant use of participatory notes by the Mauritius-registered entities operating in the domestic markets, which, in turn, were owned by certain corporates in India, Sebi had issued a circular in October 2001 saying that though FIIs could trade in PNs, they had to disclose the name of their clients.

Most of the large foreign brokerages operating in the country do business on behalf of these entities among which are hedge funds too.

However, Sebi sources said that disclosure of buyers' names are still not taking place properly.

Last two years had seen a lull in the activity of these entities with Sebi breathing down their neck by tightening regulations further.

The Mauritius government has been requested for co-operation by sharing information about these entities.

However, knowledgeable circles said that Sebi has not been able to make much headway on enforcing its directions. Most of these funds operate through sub-accounts set up by them which are not monitored by Sebi.

Further, the foreign institutional investors have to merely furnish a certificate that the sub-account is complying with the laws of the land.

But the onus lies on the FII to disclose the names of the buyers and "it is possible that they may not choose to do so," said market sources.

In fact, hedge funds have suddenly become very active in the stock markets. Sebi is known to be keeping a close watch on them.

While some hedge funds are long term investors, others fleet in and out destabilising the stock markets.