Sebi not to ban P-notes, but wants transparency

Tuesday, 23 October 2007, 07:00 Hrs
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Mumbai: The Indian stock market watchdog Monday cleared the doubts of all foreign institutional investors. Securities and Exchange Board of India (Sebi) Chairman M. Damodaran told a televised videoconference that steps to curb issuance of participatory notes were not aimed at curbing capital inflows.

Sebi Monday approved 16 applications of foreign institutional investors and invited overseas investors to register as FIIs.

Commenting on the issue of participatory notes (PNs), Damodaran said: "We are not banning participatory notes, but want a transparent market where we can trace the capital inflows."

He said Sebi would seek to expedite the process of registration as well as resist the content of regulation.

"Proprietary sub-accounts wanting to convert to FIIs must send Sebi a letter of intent within 24 hours of the videoconference, indicating they would apply to convert. They should get the completed application to the watchdog within a week," he added.

Damodaran also made it clear that there was no proposal to extend the 18-month time-limit provided for FIIs to liquidate their holding of PNs beyond 40 percent of their asset portfolio.

"There are 3,000 plus sub-accounts. Those who want to convert we would be happy - they will pay only the differential registration charges and not full registration charges," the Sebi chief told a group of FIIs in a video-conference attended by Morgan Stanley, UBS, Citi Bank, Goldman Sachs, Deutsche Bank Securities, Merrill Lynch, HSBC and CLSA, among others.

Last week, Sebi put forth a proposal to regulate issuance of PNs to put an end to unknown entities investing in India through FII sub-accounts.

A lot of FIIs prefer to buy and sell shares in India through their sub-accounts registered in tax havens like Mauritius. The sub accounts in turn issue participatory notes (PNs) to their clients based on their underlying Indian equity shares or derivatives.

Sebi is due to meet on Oct 25 when it is expected to finalise the proposals outlined last week.
Source: IANS
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