SEBI Sticks To The P-Note Roadmap

Mumbai: The Securities and Exchange Board of India’s (SEBI ) meeting with foreign institutional investors (FIIs) on Monday evening had one clear, underlying message: the efforts to identify anonymous investments through participatory notes will continue till the last dollar that comes in can be traced back.

But by registering new FIIs in double quick time, the regulator is also trying to avert an unwinding shock for the markets.

“We will seek to expedite the process of registration, as well as see what other categories of investors can be included as eligible entities in the registration process,” SEBI chairman M Damodaran said.

Giving an example of expeditious registration process, he said 16 FIIs were registered on Monday itself.

The subtext of yesterday’s videoconference is, FIIs just have to make the perfect, legible, credible application and the registration will be done in a jiffy.

Participatory notes are financial instruments used by foreign investors not registered with SEBI to invest in shares of Indian companies.

On October 16, SEBI had put out a discussion paper that proposed curbs on P-notes based on derivatives, and prohibiting sub-accounts of FIIs from issuing P-notes.

The SEBI board is due to meet on October 25 when it is expected to finalise the guidelines on the issue. The watchdog also gave a breather on registration of proprietary sub-accounts of FIIs. It said such sub accounts can apply for a licence if they are used for their own trading, while those that don’t apply will be barred.

Proprietary sub-accounts wanting to convert to FIIs have been told to send SEBI a letter of intent within 24 hours of the videoconference indicating they would apply to convert.

They should get the completed application to the watchdog within a week, he said.

Damodaran also said the rule that investors must have been in operation for at least a year may be reconsidered.

Representatives of leading FIIs such as UBS, Citibank, Deutsche, Merill Lynch, Goldman Sachs, HSBC, Morgan Stanley and CLSA Asia Pacific Markets were among the 10 who attended the meeting in the SEBI head quarters, while other FIIs participated in the discussion via video conferencing.

“One big business strategy of our clients has been impacted. There will be some quikeffect on our business to that extent,” one of them said after the discussion.

The person also added that the one week’s time allowed by SEBI to file the applications “is more than enough.”

Foreign investors now have to choose between revealing their identities by registering as FIIs or not invest at all in India.