TAKING A NOTE ON P-NOTES

There was a restriction on P-notes last October and this restriction came as a surprise to many. Before people could realize and get answers for all the ‘Wh’ questions (Why, where, who, what, when) he ban on the P-notes was reverted.

Participatory Notes or P-Notes are instruments issued by registered Foreign Institutional Investors (FII), who wish to invest in the Indian stock markets without registering themselves with the market regulator, the Securities and Exchange Board of India (SEBI). On registration these entities can directly invest in Indian stock markets, mutual funds, government securities, derivatives and debts.

On issuing P-notes and collecting funds, FII’s invest in Indian markets on behalf of the unidentified P-note holder. Some use P note to cut the transaction and brokerage cost. This in turn paves as a short cut for investors who don’t want to go through the entire process of registering. This route also allows the participants who are not eligible to trade in Indian markets to participate. SEBI are suspicious about some illegal money coming into the Indian markets. Thus the inappropriate utilization of unlawful money which comes in, gets traded and earns huge profits is feared.

To add on the illegal money if invested in any form of terror then the entire economy will be thrown into the threat and it might shatter the whole world consecutively. To protect the Indian capital market from manipulations and for ensuring greater transparency, participatory notes are sometimes referred to as problematic notes.

Indian regulators will not have any information to know who owns the underlying securities and as a result the issue of P-notes was restricted. Due to the restriction of this there was a sharp fall in the indices. In order to break the illegal activities mentally and psychologically, it was important to break them financially and hence SEBI took a closer look on the P-notes and the restriction imposed was taken off by tightening a few policies and relaxing the other policies. As an outcome of this deed the indices went up and more money came into the economy. Ultimately Indian markets have to be watchful with P-notes.