To allay concerns over misuse of controversy-ridden P-Notes, regulator Sebi has notified new norms restricting transfer of these offshore instruments only to entities authorised for their use and that too after prior consent from the issuer foreign investor.
Participatory Notes or Offshore Derivative Units are issued by Sebi-registered foreign portfolio investors to other overseas entities looking for an exposure to the Indian markets without getting registered directly to save on costs and procedures.
However, Sebi has tightened its norms substantially over the years about who can issue and who can subscribe to these instruments, amid long-standing concerns about their possible misuse for laundering of money. The regulator decided on the latest tightening of norms earlier this year after recommendations in this regard were made by the Supreme Court- appointed Special Investigation Team on Black Money.
While some of the new amendments to the regulations governing P-Notes have already come into effect, Sebi has now notified one more change that was approved by Sebi’s board recently.
As per the new notification, a foreign portfolio investor will have to ensure that any transfer of offshore derivative instruments issued by or on behalf of it, is made subject to two specific conditions -- such ODIs are transferred to persons fulfilling Sebi norms for subscription and a prior consent of the FPI is obtained for such transfer, except when the persons to whom the ODIs are to be transferred to are pre-approved by the FPI.