Curbs on participatory notes to make investment flows transparent: SEBI

17 October 2007

SEBI has proposed limiting the use of participatory notes (PN), which could be bought by anonymous foreigners from registered foreign institutional investors, SEBI chairman M. Damodaran said.

He said SEBI did not want to ban foreign funds coming into the country, but wanted investors to take a direct and transparent route through registration. He said an 18-month grace period proposed by SEBI was sufficient for investors to get registered.

Finance minister P Chidambaram also endorsed the market regulator''s proposals, and said the proposed measures, with possible modifications, would become regulations on October 25.

He said the government was not in favour of banning participatory notes (PN) and the SEBI proposal was not for a ban.

"We have simply placed a cap on the proportion of money coming through PN notes vis-a-vis the total assets under management and the total derivative position," he said. "If some investor wishes to register in India as an FII (foreign institutional investor) and invest, he is most welcome," he added.

Chidambaram said many large foreign funds were still buying shares, although the main stock market index plunged following the SEBI move.