Fight against black money: Sebi to discuss P-Notes issue

To look into any further steps that may be required to check any misuse of P-Notes route to launder unaccounted money

Having barred over 1,000 local entities for suspected tax evasion through stock markets, market regulator Sebi will discuss tomorrow the suggestions of the Supreme Court-appointed SIT on black money with regard to the Participatory Notes (P-Notes).

The Securities and Exchange Board of India (Sebi)'s board will tomorrow discuss the SIT report on black money, while looking into any further steps that may be required to check any misuse of P-Notes route to launder unaccounted money.

While Sebi and the government are of the view that the P-Note regulations are robust enough to check any misuse, the board would discuss whether more stringent measures are needed to curb flow of black money from within the country and abroad, sources said.

In its latest report, the Special Investigation Team on Black Money had suggested that Sebi needs to further strengthen its monitoring mechanism to detect instances of the stock market platform being misused for tax evasion.

It had also suggested Sebi to review its regulations on participatory notes to help identify the end-users of these instruments.

However, Finance Secretary Rajiv Mehrishi said last week that there was no requirement for "much change" in the regulations for Participatory Notes as the existing norms make it 'almost impossible' to misuse this route.

Sebi is also of the view that it has put in place a robust system to check any misuse of the P-Note route.

P-Notes are issued by foreign portfolio investors registered with Sebi to other overseas investors who want to take a position in the Indian markets without any direct registration for trading in Indian markets.

These instruments are popular as they provide a low-cost and easier route for investing in the Indian markets.

A few years ago, Sebi had put in place strong checks and balances to avoid misuse of this route, and P-Notes can be issued only after strong KYC requirements are followed and they can not be issued to high-risk investors. The norms have been tightened considerably for P-Notes over the years.

In May, investments through P-Notes hit a seven-year high of Rs 2.85 lakh crore. It stood at Rs 2.75 lakh crore at the end of June. The offshore derivative instrument accounts for nearly 15-20% of the total FII investment in India since 2009.

Its share has fallen over the years after Sebi tightened disclosure norms and other related regulations. It was as high as over 50% at the peak of stock market bull run in 2007.