SEBI removes restrictions on P-Notes

Securities and Exchange Board of India (SEBI) today decided to lift curbs on the issuance of the Participatory Notes by the Foreign Institutional Investors (FII), a move that may revive the stock markets troubled by the global financial meltdown.

The regulator will remove the 40 per cent restriction for issuance of PNs for both cash and derivative segments, SEBI Chairman C B Bhave told reporters after the Board meeting here.

SEBI has also decided to undertake a comprehensive review of FII framework in the backdrop of global developments triggered by ongoing global turmoil.

The regulator had imposed the restrictions on the PNs in October last year amid excessive speculation. 

Pointing out that P-Notes issuance has come down substantially, Bhave said: "We are restoring the pre-October 2007 position. At that time no cap existed."

Many FIIs and sub-accounts have registered in the last one year, he said that we want the trend to continue.

Replying to questions on imposing restrictions on short selling, he said, "we are monitoring what is happening in other markets. We have to see what is right for our market. There is hardly any institutional short selling, he said, adding, the problem occurs when there are no deliveries."

On an earlier occasion he had said, "no apprehensions that institutions are short selling... There are no indications that anybody has violated the rules. Our stock markets have seen more volatility. We do not expect any problem now."