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Participatory Notes: An overview

1992
 Participatory Notes: An overview
  • Participatory Notes are instruments which are issued to foreign investors by Foreign Institutional Investors. This enables the investors to invest in Indian stock markets without registering with SEBI.
  • Since these instruments facilitate investments in Indian stock markets from outside India, they are also called as Off-Shore Derivative Instruments.
  • SEBI permitted the trading of such P-Notes since the year 1992.

The working mechanism of P-Notes

Jul 2015
 The working mechanism of P-Notes
  • Foreign Institutional Investors (FII) often use P-Notes to facilitate overseas investor participation
  • An India-based individual or entity buys Indian security and issues P Notes to foreign investors. Hence, they become subsequent "owners" or "beneficial owners"
  • Hence, without a registration with SEBI these foreign investors invest in Indian-stocks.
  • Any dividends or gains that arise from such transfers move to the investors.

The SIT recommendations at a glance

24 Jul 2015
The SIT recommendations at a glance
  • The Special Investigation Team (SIT) rolled-out the third report on steps to check black money.
  • It stipulated cricket bettings, overseas investments through P-Notes, mispricing imports and exports as major attributes of black money. SIT also proposed an "appropriate legislature" to trim down cricket betting.
  • In addition, the team also prescribed prosecution for unaccounted donations to charity, education or religious bodies.

SIT guidelines for SEBI

25 Jul 2015
SIT guidelines for SEBI
  • SIT identified many factors as the cause of black-money and identified specific areas for SEBI to minimize it.
  • The SIT proposed that SEBI, the capital market regulator must initiate prosecution proceedings and take legal actions against tax-evaders. Earlier, SEBI merely banned such evaders from the stock markets.
  • SIT also recommended SEBI to have one "effective monitoring mechanism" to gauge unusual oscillations in stock prices.

P-Note curb proposal reminds of 2007 crash

Fact
Data

Earlier in 2007, the Government held a discussion to restrict P-Notes and sensex dropped by 9% in a single session. The current proposal on P-Notes too is speculating a similar tumble.

SIT recommends a curb in P-Note transfers

28 Jul 2015
SIT recommends a curb in P-Note transfers
  • Supreme Court appointed Special Investigation Team (SIT) proposed that SEBI had to track-down the owners of Participatory Notes (P-Notes) and also restrict their transfers.
  • The recommendation caused immediate panic in Dalal Street and as a result both BSE and NSE index slipped below their support levels.
  • Revenue Secretary, Shaktikanta Das assured that SIT's recommendations have not yet been implemented.

STI announcement triggers panic

Fact
Data

An announcement to curb P-notes triggered instantaneous psychological panic and BSE Sensex fell 300 points below the support level of 28000. Also NIFTY dropped below the conventional level of 8450.

Government says P-Notes regulatory framework is robust

3 Dec 2015
Government says P-Notes regulatory framework is robust
  • MoS for Finance Jayant Sinha said that the current regulatory famework for Participatory-Notes is robust, thereby indicating that there will be no change in the current rules.
  • He said that SEBI had strengthened the P-Notes KYC norms over the years and so the identity of P-Notes holders is fairly good.
  • These comments are important as SC had asked SEBI to review its P-Notes regulations.