Foreign Investors Can Issue P-Notes To Entities Complying With New Rules: Sebi

New Delhi: The Securities and Exchange Board of India (Sebi) on Wednesday said foreign portfolio investors (FPIs) can issue fresh participatory notes (P-Notes) to entities that comply with tightened regulations by the capital markets watchdog.

Earlier this month, Sebi issued a detailed framework with regard to tightened KYC (know your customer) and disclosure requirements for offshore derivative instruments (ODIs) - commonly known as P-Notes, which provide the foreign investors an easier and cost-effective route to invest in Indian markets without directly registering as foreign portfolio investors.

Under the new norms, all users of ODIs would have to follow Indian KYC and AML (anti money laundering) regulations, irrespective of their jurisdictions, while the ODI issuers will be required to file suspicious transaction reports, if any, with the Indian Financial Intelligence Unit, in relation to the ODIs issued by them.

These norms are aimed at checking any misuse of P-Notes. Fresh ODIs can be issued to those entities which comply with Sebi regulations, including tightened norms, along with other conditions that may be notified by the markets watchdog from time to time, Sebi said in a circular issued on Wednesday.

The ODI subscribers who have subscribed to ODIs can continue to do so provided they comply with Sebi norms including the new tightened framework.

Those ODI subscribers which do not meet the norms "including unregulated funds whose investment manager is appropriately regulated, can continue to hold the position till the date of expiry of such positions or till December 31, 2020, whichever is earlier. Such subscribers cannot take fresh positions or renew the old positions".

The circular will be effective from August 1, 2016.