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What are Participatory Notes?

Topics Covered: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.

What are Participatory Notes?


Context:

Investments through participatory notes (P-notes) in the domestic capital market soared to Rs 63,288 crore till July-end, making it the fourth consecutive monthly rise.

  • Of the total money invested through the route till July, Rs 52,356 crore was invested in equities, Rs 10,429 crore in debt, Rs 250 crore in the hybrid securities and Rs 190 crore in derivatives segment. 

What are Participatory Notes?

Participatory Notes or P-Notes (PNs) are financial instruments issued by a registered foreign institutional investor (FII) to an overseas investor who wishes to invest in Indian stock markets without registering themselves with the market regulator, the Securities and Exchange Board of India (SEBI).

 Key points:

  • P-Notes are Offshore Derivative Investments (ODIs) with equity shares or debt securities as underlying assets.
  • 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 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.

 Sources: the Hindu.