Union Finance Minister P Chidambaram on Wednesday said the government was not in favour of banning participatory notes (P-notes). | |
| He was speaking at a hastily convened press briefing at 10.45 am outside his office at North Block after the BSE Sensex tanked 1744 points following Sebi's proposal to tighten rules for the purchase of shares and bonds through offshore derivative instruments, including participatory notes. |
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| Chidambaram said the move was part of a series of steps aimed at moderating inflows of overseas capital. "We are not in favour of banning participatory notes. We are only trying to cap the proportion of money coming in through participatory notes vis-a-vis the derivative position," he added. |
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| Once trading resumed after the FM's comments, the markets gradually recovered. "If investors, through the participatory note, wish to register in India as FIIs and invest, they are most welcome," Chidambaram said. He added that Sebi's decision will be good for the stock markets in the long term. |
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| The finance minister emphasised the consultation paper had been put out after long deliberations between Sebi, the Reserve Bank of India and the government. "These measures are in the overall interest of the economy, the market and investors," he said. |
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| A finance ministry press statement issued later in the day said the proposed measures include some kind of restrictions on issue of offshore derivative instruments by FIIs and their sub-accounts in relation to their exposure in the market. |
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| "Neither do these suggest, nor is there any intention to ban issue of such instruments by FIIs," it reiterated. |
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| The proposed measures have been put on Sebi website for public comments, based on which the final guidelines will be announced. |
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| "The consultation paper could be a regulation, with or without modification," Chidambaram said. Holding that the fundamentals of the economy are sound, Chidambaram said nothing had changed from last evening. | ALL YOU WANTED TO KNOW ABOUT FII SUB-ACCOUNTS & PNS | | | What is a sub-account?
Sub-account includes foreign corporates and institutions, funds or portfolios established or incorporated outside India on whose behalf investments are proposed to be made in India by a FII. Who can get registered as sub-account?
a) Institution, funds or portfolios established outside India, whether incorporated or not.
b) Proprietary fund of a foreign institutional investor.
c) Foreign Corporates Who needs to apply for sub-account registration?
The FII should apply on the behalf of the sub-account. Both the FII and the sub-account are required to sign the sub-account application form. How much is the fee for sub-account registration?
$2,000 Are overseas corporate bodies (OCBs)/non-resident Indians (NRIs) allowed to be registered as FII sub-accounts?
No, they are not permitted. What is the procedure for transferring a sub-account from one FII to another?
The FII to whom the sub-account is proposed to be transferred has to send a request along with a declaration that it is authorised to invest on behalf of the sub-account. A no-objection certificate from the transferor FII should also be submitted. What are the reporting requirements for participatory notes?
a) FII sub-accounts who issue/renew/redeem PNs should report to SEBI on a monthly basis. The report should reach the regulatory authority by the seventh day of the following month.
b) The FII sub-accounts merely investing in or subscribing to the participatory notes/access products/offshore derivative instruments or any such type of instrument securities with the Indian securities as underlying are required to report on a quarterly basis (Jan-Mar, Apr-Jun, Jul-Sep and Oct-Dec).
c) FII sub-accounts who do not issue PNs, but have trades/hold Indian securities in the reporting quarter (Jan-Mar, Apr-Jun, Jul-Sep and Oct-Dec) have to submit 'Nil' undertaking on a quarterly basis.
d) FII sub-accounts who do not issue PNs and have no trades/holdings in Indian securities during the reporting quarter. (Jan-Mar, Apr-Jun, Jul-Sep and Oct-Dec): No reports required for that reporting quarter. Who can subscribe to participatory notes?
a) Any entity incorporated within an area that requires the filing of constitutional and/or other documents with a registrar of companies, comparable regulatory agency or body under the applicable companies legislation in that jurisdiction;
b) Any entity that is regulated, authorised or supervised by a central bank, such as the Bank of England, the Federal Reserve, the Hong Kong Monetary Authority, the Monetary Authority of Singapore or a similar body, provided that the entity must not only be authorised but also regulated by the aforesaid regulatory bodies;
c) Any entity that is regulated, authorised or supervised by a securities or futures commission, such as the Financial Services Authority (UK), the Securities and Exchange Commission, the Commodities Futures Trading Commission, the Securities and Futures Commission (Hong Kong or Taiwan), Australian Securities and Investments Commission (Australia) or other securities or futures authority or commission in any country, state or territory;
d) Any entity that is a member of securities or futures exchanges such as the New York Stock Exchange (Sub-account), London Stock Exchange (UK), Tokyo Stock Exchange (Japan), NASD (Sub-account) or similar self-regulatory securities or futures authority or commission in any country, state or territory, provided the organizations are ultimately accountable to the respective securities/financial market regulators.
e) Any individual or entity (such as fund, trust, collective investment scheme, investment company or limited partnership) whose investment advisory function is managed by an entity satisfying the criteria of (a), (b), (c) or (d) above |
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