SEBI''s new P-Note norms for foreign investors to help usher in transparency

SEBI said foreign institutional investors (FIIs) and their sub-accounts cannot issue fresh P-Notes and will have to wind up their current position in 18 months.

In spot market, FIIs will not be allowed to issue P-Notes for more than 40 per cent of their assets under custody. SEBI also set the reference date for calculating such assets at 30 September.

SEBI chairman M Damodaran announced the decision after a meeting of the board. The new rules would come into effect from the close of trading hours today.

Those FIIs that have issued P-Notes of more than 40 per cent of their assets, could issue such instruments only if they cancel, redeem, or close their existing P-Notes. Those FIIs who have issued P-Notes less for than 40 per cent of their assets under custody (AuC) can issue additional instruments at the rate of five per cent of their assets.

P-Notes are issued by FIIs registered in India to unregistered overseas investors. Registered FIIs buy Indian securities and issue the notes based on the underlying asset.

These instruments give foreign investors a backdoor entry into the market without registering with the authorities and SEBI wants them to register so as to have transparency on inflows.