Participatory notes may go in 3 years
By agencies   |   Thursday, 03 November 2005, 20:30 IST
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NEW DELHI: The government may consider phasing out participatory notes issued to unregulated entities within three years instead of five years allowed at present, a paper reported. This has been recommended in an internal policy paper on streamlining FII investments. The government may simultaneously also work out a list of tax havens to ensure that dubious funds do not reach the Indian stock markets, the Economic Times reported. The present schedule for FIIs was worked out by the high-level co-ordination committee for capital markets, which is the apex decision-making body for all the regulators, including Sebi, RBI and the finance ministry. The decision to give FIIs a five-year period to wind down their exposure to unregulated entities was a fall-out of the recognition that the regulators must know the end-investors. Unregulated entities are not controlled by market regulators in the originating countries and follow little disclosure norms in the Indian capital markets. The three-year time frame could come into effect from February 2004, when Sebi issued the present notification barring FIIs from issuing PNs to any unregulated entities. It said the existing non-eligible PNs must be permitted to expire or be wound down within five years. Whittling the time frame to three years is felt desirable on the condition that the lifeline is too long. The proposal to work out a list of negative tax havens has been recommended by an internal report on the flow of FII investment into the economy, the paper added. The report says by identifying a list of such tax havens, the regulatory authorities can ensure that FIIs registered in those places are not given permission to operate here. The recommendation is in line with that of the financial action task force, “to ensure that only clean money through recognized banking channels is permitted in the securities market,” the paper said.

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