SEBI to reach on conclusion on Participatory Notes
Oct 25: The board meeting of the Securities and Exchange Board of India (SEBI) has diverted all the attention for the moment from the rising and falling of sensex.
SEBI Chairman M Damodaran and the board members will surely try to find out all the possible ways to save the market from its Participatory Notes (PN) stand, which created a massive drop in the sensex in a single day in previous weeks. Though the market recovered initially on October 17 th after a one-hour halt of trade in the stock exchange, but still the dark clouds have been hovering around the market.
Foreign Institutional Investors ( FII’s) who purchase Indian stocks from Indians and sale them as a Participatory Notes. Value of PN depends on the performance in the market. FIIs are registered with SEBI but not the purchaser of PNs who can be a terrorist, a money launderer at times and could be bought by companies to inflate price of its share in the market to increase its market capitalisations.
SEBI wants companies buying PNs to invest directly by registering with them to moderate the forex inflow.
Earlier, the market nose-dived on October 17 th after SEBI recommended to curb PNs. On that instance Finance Minister P. Chidambaram said that whatever SEBI has recommended would become a law from October 25 th with or without moderation.
It is believed that SEBI will allow some modification in the recommendations based on feedback it has received by FIIs.
Various reports say that SEBI might speed up the registration for FII status and will allow pension funds to register for FII status. Pension Funds are not regulated unit abroad.
It is also reported that the sub-account holders have confirmed that they want to go for registration. FIIs handle PNs through sub accounts.
SEBI might allow foreign individual with investment funds of more than $50 million to operate as sub- accounts. In discussions with FIIs SEBI told that sub–accounts if applied within a week to register as FIIs, it can issue PNs. It has also received applications from sub- accounts for registrations as FIIs.
The issue related to PNs must be solved as both the watchdog of security market SEBI and the custodian of funds and monitory policies, Reserve Bank of India (RBI) are against PNs.
RBI has said, “The main concern regarding issue of PNs are that the nature of the beneficial ownership or the identity of the investor will not be known, unlike in the case of FIIs registered with a financial regulator.
Trading of these PNs will lead to multi-layering, which will make it difficult to identify the ultimate holder of PNs. Both conceptually and in practice, restriction on suspicious flows enhance the reputation of markets and lead to healthy flows”.
Market experts say that such measure will be beneficial in the longer term and will also moderate the suspicious capital inflow in the Indian market.
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