PTI
Mumbai
Tightening its norms to check any misuse of controversy-ridden PNotes, market regulator Securities and Exchange Board of India (SEBI) Thursday made it mandatory all end-users of these overseas instruments to follow anti-money laundering law in India and asked their issuers to report any suspected breach immediately.
Acting upon recommendations of the Supreme Court-appointed Special Investigation Team on black money, SEBI tightened due diligence requirements for the issuance and transfer of controversy-ridden P-Notes and put the onus on investors to ensure the AML compliance.
The issuers would have to conduct periodic review and report the complete transfer trail of Offshore Derivative Instruments (ODIs) -- commonly known as Participatory Notes or P-Notes -- to SEBI on a monthly basis in addition to the present requirement of reporting details of their holders.
Any change in P-Note regulations often result in a significant impact on the markets. Markets plunged sharply on anticipation of tightening of the norms, during a SEBI meeting Thursday.
P-Notes are typically instruments issued by registered foreign institutional investors to overseas investors, who wish to invest in the domestic stock markets without registering themselves directly in India, but still need to go through a proper due diligence process.
P-Notes make up for about 10-12 per cent of the total FII inflows, as against over 50 per cent at the peak of stock market bull run in 2007. Total investment through ODIs stood at Rs 2.2 lakh crore at the end of March 2016.
Rules have been tightened several times in recent years to check any misuse of this route, but P-Notes have still continued to court controversies.
The Supreme Court appointed SIT on black money last year had suggested that SEBI should further strengthen its norms to keep a tab on beneficial ownership of P-Notes as they were widely used by foreign investors and could be prone to misuse.
While SEBI has been of the view that the regulations have already been strengthened to check any misuse of this route for money laundering like activities, it decided to put in place additional safeguards as suggested by the SIT.
The SIT last year had suggested that SEBI should further strengthen its norms to keep a tab on beneficial ownership of P-Notes as these are widely used by foreign investors and could be prone to misuse.
