Is participatory notes banned in India?

The government is not keen on banning Participatory Notes completely, primarily because it fears any such move could lead to a flight of capital from a country that has a current account deficit (CAD) and needs foreign investment desperately to reduce it.

Are participatory notes valid in India?

Background. Participatory notes are instruments used for making investments in the stock markets. However, they are not used within the country; they are used outside of India for making investments in stocks listed on Indian stock markets, which is why they’re also referred to as offshore derivative instruments.

What is a participation note?

Participation Notes are derivative instruments linked to financial instruments which usually include equities, market indices, ETFs, interest rates, currencies, or a combination of these. Investors can enjoy a potential capital gain in case their market anticipation on the underlying financial instrument is correct.

What are participatory notes Upsc?

A participatory note, commonly known as a P-note or PN, It is an instrument issued by a registered foreign institutional investor (FII) to an overseas investor who wishes to invest in Indian stock markets without registering themselves with the market regulator, the Securities and Exchange Board of India (SEBI).

Are participatory notes regulated by SEBI?

SEBI has no jurisdiction over participatory note trading. Although foreign institutional investors must register with the Indian regulatory board, the participatory notes trading among foreign institutional investors are not recorded. The government ultimately decided not to regulate participatory notes.

What is offshore derivative instrument?

Offshore Derivative Instruments (ODIs), also known as Participatory notes (p-notes) are instruments used by the foreign investors to invest in India’s securities markets without getting registered with the SEBI. Securities include shares, bonds and derivatives.

Is participatory notes regulated by SEBI?

Participatory Note Regulatory Issues SEBI has no jurisdiction over participatory note trading. Although foreign institutional investors must register with the Indian regulatory board, the participatory notes trading among foreign institutional investors are not recorded.

Can NRI invest in P notes?

In its board meeting held on Wednesday, SEBI stated that it will amend the Foreign Portfolio Investor (FPI) regulations to ensure that resident Indians, Non-Resident Indians and entities owned by them do not buy offshore derivative instruments or Participatory Notes (P-notes).

Who can issue participatory notes?

foreign institutional investors
Brokers and foreign institutional investors registered with the Securities and Exchange Board of India (SEBI) issue the participatory notes and invest on behalf of the foreign investors. Brokers must report their participatory note issuance status to the regulatory board each quarter.

Can NRI invest in P-notes?

What are P-notes and what has Sebi done to regulate P-notes?

Simply put, P-Notes are receipts issued by FPIs against the money they receive for stocks purchased on behalf of clients. These instruments are not registered in India and, therefore, the real identity of the beneficiary investor is not revealed to regulatory authorities.

Can foreign investors buy participatory notes in Indian stock market?

One of the controversial issues related with the participation of foreign investors in Indian stock market is the subscription of Participatory Notes by foreign investors. Participatory Notes (P-Notes) are instruments used by foreign funds and investors not registered with the SEBI to invest in Indian securities.

Who can issue P-notes in India?

They are generally issued overseas by associates of India based foreign brokerages (FPIs) and domestic institutional investors. Technically, P-Notes are Offshore Derivative Instruments (ODIs) issued by FPIs and their subaccounts against underlying Indian securities (like shares).

What will happen to FPIs if P-notes are banned?

According to market statistics, FPIs hold P-Notes of over Rs 1.9 lakh crore in cash and Rs 40,000 crore in derivatives. This means that banning of PNs for equity derivatives will lead to phasing out of around 25\% of investment made through P-Notes.

What is SEBI’s guidance to FPIs on liquidation of P-notes?

SEBI also instructed ODI-issuing FPIs to liquidate such ODI instruments prior to the timeline of 2020. According to market statistics, FPIs hold P-Notes of over Rs 1.9 lakh crore in cash and Rs 40,000 crore in derivatives.