No more naked derivative exposure for P-note holders; Sebi ban takes effect

Sebi says existing positions need to be liquidated before December 2020 or by the date of maturity

Capital markets regulator the Securities and Exchange Board of India’s (Sebi’s) ban on holders of participatory notes (p-notes), also called offshore derivatives instruments (ODIs), from taking unhedged derivatives has come into effect.

This means p-note holders won’t be able to take naked exposure to the derivatives market anymore. All their existing positions will have to be squared off by the end of 2020 or by the date of maturity of the instrument, whichever is earlier. 

The market regulator has said ODI-issuing foreign portfolio investors (FPIs) will have to provide a certificate that fresh derivatives positions are “only for hedging the