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The Securities Market regulator Securities and Exchange Board of India (SEBI) has tightened the Participatory Notes (P-note) norms. The main purpose of this decision is to keep

The Securities Market regulator Securities and Exchange Board of India (SEBI) has tightened the Participatory Notes (P-note) norms. The main purpose of this decision is to keep Correct Answer Vigil on foreign investments to curb black money inflows in the country.

 The correct answer is Vigil on foreign investments to curb black money inflows in the country.

Key Points

  • Participatory Notes are offshore/overseas derivative instruments (ODIs) issued by registered foreign institutional investors (FII) to overseas investors.
  • P-Notes are issued to overseas investors who wish to invest in the Indian stock markets without registering themselves (anonymous) with the market regulator SEBI.
  • P-Notes are used by money launderers. They first take funds out of the country through hawala and then get it back using P-Notes.

Additional Information

  • They provide liquidity to the investors as they can transfer the ownership by endorsement and delivery.
  • While the FIIs have to report all such investments each quarter to SEBI, they need not disclose the identity of the actual investors. 

What are the govt & regulator’s concerns?

  • The primary reason why P-Notes are worrying is because of the anonymous nature of the instrument as these investors could be beyond the reach of Indian regulators.
  • Further, there is a view that it is being used in money laundering with wealthy Indians, like the promoters of companies, using it to bring back unaccounted funds and to manipulate their stock prices.

Related Questions

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Q: But recent episodes of suspected insider trading through WhatsApp groups, in which analysts shared prescient tip-offs about upcoming results for top listedcompanies, reveals that the framework remains porous.
R: The Ministry of Corporate Affairs and the Securities Exchange Board of India (SEBI) have lately redoubled their efforts to put in place a water-tight governance framework for listed firms.
S: Initiating a probe into this episode, SEBI has interrogated analysts, conducted raids on stock brokers and deployed search-and-seizure powers to confiscatelaptops and mobile phones.
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