Thursday, November 15, 2007

SEBI PRUNES P-NOTES

Participatory notes (P-notes) are securities linked to equities used by investors who cannot trade directly in the Indian market. Securities and Exchange Board of India (SEBI) has suggested restricting their use to curb burgeoning capital flows into the country. Accordingly,

  • FIIs and sub-accounts to wind up P-notes for investing in derivatives within 18 months.
  • FIIs will not be allowed to issue P-notes in the spot market for more than 40% of their assets under custody.
  • Those FIIs that have issued P-Notes less than 40% of their assets under custody, can issue additional instruments at the annual rate of 5% of their assets.
  • The reference date for calculating such assets will be September 30.
  • The registration procedure is being simplified; FII registration to be in perpetuity.
  • Separate category of unregulated investors, such as pension funds and charitable trusts, to be allowed.
  • Fresh look at FII regulations.
Institutional investors that have applied to register sub accounts can continue trading while their application is being processed. Foreign investors currently registered in India will not be allowed to issue new derivatives from sub accounts based in tax havens such as Mauritius.

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