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.
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.
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.
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.
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.
Fact: P-Note curb proposal reminds of 2007 crash
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.
28 Jul 2015: SIT recommends a curb in P-Note transfers
Fact: STI announcement triggers panic
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.
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.