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बेसिक इंग्लिश का दूसरा सत्र (कक्षा प्रारंभ : 22 अक्तूबर, शाम 3:30 से 5:30)
Q. SEBI’s new rules for Participatory Notes: comment on the SEBI’s recently released norms to regulate Participatory notes.
May 23, 2016 Related to : GS-Paper-3

Ans :


Participatory notes (P-Notes) are the financial instruments used by investors or hedge funds that are not registered with the Securities and Exchange Board of India (SEBI) to invest in Indian securities. Participatory notes are issued by brokers and FIIs registered with SEBI. The investment is made on behalf of these foreign investors by the already registered brokers in India. By their very nature, P-Notes are seen as an opaque route for investment which leaves room for round-tripping and money laundering.

In news-

Recently SEBI has proposed new rules for P-Notes which are aimed at curbing the potential for money laundering through this investment route, which are popular among rich individuals and hedge funds.

What are new changes?

  • Now offshore derivative instruments (ODIs) issuers need to adhere to the Indian know your customer (KYC) norms and also P-Notes has been brought under anti-money-laundering rules.

  • The subscribers will have to take prior permission from the ODI issuer in case of transfer of the instruments to another offshore investor.

  • The ODI issuers will have to report all the transfers made among the instruments issued by them on a monthly basis to the regulator.

  • ODI issuers need to alert the Financial Intelligence Unit in case of any suspicious transaction.


  • There is apprehension that P-Notes are serving the interests of Black Money holders and helping the money laundering from the country. Even Supreme Court-appointed Special Investigation Team on black money, has recommended for tightening the rules. Hence SEBI’s new rules help in maintaining transparency on the identity of those investing in the markets.

  • Increased disclosure norms, bringing P-Note holders under the ambit of Indian know-your-customer and anti-money-laundering rules and restricting the transfer of P-Notes among foreign investors will raise transaction costs, and complicate compliance for issuers.

  • It will affect only those investors who want to hide their identity. And Investors, who want only to avoid the hassle of registering themselves as foreign portfolio investors, rather than to hide their identity, should not find any difficulties by these rules.


  • The strategy to phase-out the P-Notes should be a gradual and automatic, not abrupt changes that would affects the market.

  • India should create a Unique Legal Entity Identifier, to bring out ultimate beneficial ownership.


Indian economy is facing huge issues of black money and money laundering.  In this background SEBI has formulated much needed norms to regulate the P-Notes market and new norms will check the any misuse of P-Notes for laundering of black money. These norms will add strength to our markets and genuine investors and p-note holders won’t find any difficulties in complying it.

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