MUMBAI: The Securities and Exchange Board of India (SEBI) has tightened rules governing issuance of offshore derivative instruments (ODI), popularly referred to as participatory notes (P-Notes), with immediate effect. The move is seen by experts as an attempt to ensure legitimate money flowing into the country.
In a circular issued late on November 24, SEBI said foreign portfolio investors shall issue ODIs only to those investors who are residents of a country whose securities market regulator is a signatory to International Organization of Securities Commission’s (IOSCO) multilateral memorandum of understanding or a signatory to bilateral memorandum of understanding with SEBI.
Else, the applicant should be a bank, registered in a country whose central bank is a member of Bank for International Settlements, and the applicant should not be from a country that has been declared to have deficiencies in anti-money laundering or combating the financing of terrorism, and has not addressed these deficiencies.
“Where an investor has investments as foreign portfolio investor and also holds positions as an ODI subscriber, these investment restrictions shall apply on the aggregate of FPI investments and ODI positions held in the underlying Indian company,’’ SEBI said in its statement.
“Investment as FPI and positions held as ODI subscriber will be clubbed together with reference to the said investment restrictions.’’
Until now, even unregulated overseas funds were allowed to subscribe to the Participatory Notes as long as the fund manager was regulated. Basically, the new norms will enhance KYC and shut out entities form opaque and non-transparent structure to filter the kind of money that flows into the country.