P notes Current Affairs - 2019
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Investments through participatory notes (P-notes) into Indian capital markets- equity, debt, and derivatives have plunged to over nine-year low of Rs 80,341 crore till July 2018-end. This is the lowest level since April 2009 when the cumulative value of such investments stood at Rs 72,314 crore.
The decline comes amid stringent norms put in place by market watchdog Securitas Exchange Board of India (SEBI) to check misuse of these instruments. In July 2017, Sebi had notified stricter norms stipulating fee of US $1,000 on each instrument to check any misuse for channelising black money. It had also prohibited FPIs from issuing such notes where underlying asset is derivative, except those which are used for hedging purposes. Earlier in April 2017, SEBI also had barred resident Indians, NRIs and entities owned by them from making investment through P-notes.
Participatory Notes (P-notes)
P-notes are offshore/overseas derivative instruments (ODIs) issued by registered foreign portfolio investors (FPIs) to overseas investors who wish to be part of the Indian stock market without registering themselves directly. They, however, need to go through due diligence process. P-Notes are not used within the country but are mainly used outside India for making investments in shares listed in the Indian stock market. SEBI had permitted FIIS to participate and register in the Indian stock market in 1992. Earlier, investing through P-Notes is very simple and is very popular amongst FPIs, FIIs.
The markets regulator SEBI (Securities and Exchange Board of India) has put in place a stricter KYC (Know Your Customer) norms and disclosure regime for Participatory Notes (P-Notes).
P-Notes are offshore/overseas derivative instruments (ODIs) issued by registered foreign institutional investors (FII) to overseas investors. They provide easier and cost-effective route to foreign investors to invest in Indian markets without directly registering as Foreign Portfolio Investors (FPIs).
- The aim of SEBI’s stricter KYC, disclosure norms is to make it tougher to use these offshore instruments that do not disclose the money-trail and details of their users.
- Under the new norms, all the users of P-Notes would have to follow Indian KYC and Anti Money Laundering (ALM) Regulations, irrespective of their jurisdictions.
- Henceforth, P-Note issuers will be required to file suspicious transaction reports with the Indian Financial Intelligence Unit.
- ODI holders have to report monthly reports on ODIs all the intermediate transfers during the month.
- Besides, ODI issuers have to carry out reconfirmation of the ODI positions on a semi-annual basis.
- The measure was issued after taking into account suggestions from Special Investigation Team (SIT) on black money to ensure this route is not used for money laundering.
- In recent times ODIs have often been in controversy in India for alleged misuse for round-tripping of funds.
- But since the SEBI made stringent norms in the recent years, they have also become less attractive.
- Earlier in 2007, ODIs used to account for as high as 55% of the total foreign fund flows in Indian capital markets, now their share has fallen to a record low level of 9.3%.