Mumbai: The Securities and Exchange Board of India (SEBI) has done away with the 40 per cent cap on investment through offshore derivative instruments, popularly known as participatory notes (PNs), as the stock market regulator announced a slew of measures to ease market volatility and boost foreign fund flows into bourses.

The announcement comes after the Bombay Stock Exchange sensitive index plunged over 700 points, dipping below 12000 points, amidst mayhem on the stock markets across the world.

SEBI chairman CB Bhave said the stock market regulator would also take up a comprehensive review of rules governing foreign participation in the market.

SEBI had, last year, put restrictions on the issuance of PNs as these helped foreign investors remain anonymous while excess liquidity of foreign funds had made the market unmanageable for the regulator.

''We are restoring the pre-October 2007 position. At that time no cap existed,'' Bhave said, adding, PN issuance has come down substantially amidst gloomy market conditions.

The SEBI board, which reviewed the position with regard to registration of FIIs and sub-accounts in the last one year, said 397 FIIs and 1,160 sub-accounts have been registered since 31 October 2007.

FII registration norms, however, have been left untouched. Many FIIs and sub-accounts have registered in the last one year, he said, ''we want the trend to continue.''

Bhave also said there was hardly any institutional short selling, adding, the problem occurs when there are no deliveries.

A SEBI notification said the board would encourage promotion of dedicated exchanges and/or dedicated platforms of the exchanges for listing and trading of securities issued by SMEs. Multiple exchanges or platforms would provide the necessary competition in this space.

SEBI plans to come out with a suitable framework for recognition and supervision of such exchanges/platforms. The enterprises with a post issue paid-up capital of up to Rs25 crore would be listed on such exchanges/platforms and trading lot would be Rs1 lakh.

Currently, a person along with persons acting in concert can hold up to 5 per cent of shares in a recognised stock exchange. In order to encourage competition in the
exchange space, the board decided to enhance this limit from 5 per cent to 15 per cent in respect of six categories of shareholders, namely, public financial institutions, stock exchanges, depositories, clearing corporations, banks and insurance companies.