NEW DELHI:With regulatory and enforcement agencies tightening the screws on misuse of offshore derivative instruments, commonly known as participatory notes (P-notes), a number of foreign investors including HSBC and UBS have stopped issuing these instruments.
P-note is an instrument by which a foreigner can invest in Indian stock markets. While non-resident Indians cannot use P-notes under the laws, many experts have pointed out that this is often flouted and Indians use this route launder their ill-gotten wealth.
Sebi, too, has found suspicious transactions involving P-notes with ‘Indian-sounding names’. Sebi has asked the foreign portfolio investors to confirm whether these people are NRIs. The regulator has already handed over the list of foreign fund houses suspected to have issued P-notes to Indian nationals. Sebi has also shared with the government another list of the investors having parked large amounts of money, each worth $100 million, through these instruments. These instruments used to be very popular at one point of time among foreign investors who used to invest through this route provided by registered FPIs.