Goseeko blog

What is P-note?

by Uddipana Gogoi

P-note is a participatory note also known as PN. It is an instrument of foreign institutional investors/foreign portfolio investors. It is issuing to overseas investors for investment in the Indian stock market. PN encourages investment from unregistered buyers i.e, for overseas investors not registered with the Securities and Exchange Board of India (SEBI). Further, Investments through Participatory Notes in the domestic capital market rose to Rs 78,110 crore at the end of March,2019 amid positive market sentiments.

Features of P-note

  • Firstly, PN are Offshore Derivative Investments (ODIs) with equity shares or debt securities as underlying assets.
  • Secondly, they provide liquidity to the investors as they can transfer the ownership by endorsement and delivery.
  • Moreover, While the FIIs have to report all such investments each quarter to SEBI, they need not disclose the identity of the actual investors. 
  • Finally, the primary reason why PN are worrying is because of the anonymous nature of the instrument as these investors could be beyond the reach of Indian regulators.

Advantages of P-note

  1. Any entity can invest in the participatory notes without registering under SEBI.
  2. PN enables the large hedge funds to continue their operations without disclosing their identity.
  3. The instrument is transferable through endorsement and delivery making trading easy in the country.
  4. It allows taking advantage of the tax laws of certain preferred countries.
  5. It encourages foreign investment into the country and non-compulsion of registration with SEBI.
  6. About 45 percent of total investments made by foreign instructional investors (FIIs) are through the PN.

SEBI Norms on PN

All P-notes will have to abide by Foreign Portfolio Investors Regulations. PN won’t be allowed to be issued by a resident of a country identified by Financial Action Task Force as a “jurisdiction having a strategic Anti Money Laundering or Combating the Financing of Terrorism deficiencies to which counter measures apply. 

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