Tightening the noose: Sebi cracks the whip on p-notes

Fees of $1,000 per subscriber and ban on speculative derivatives trades among measures proposed

The Securities and Exchange Board of India (Sebi) on Monday proposed tighter regulations for participatory notes (p-notes), an instrument used by foreign investors to take exposure to the domestic market without registering in India.

In a discussion paper, the market regulator proposed to bar p-notes, or offshore derivative instruments (ODIs), from taking speculative positions in the futures and options segment. It said note-holders would be allowed exposure to the derivatives market only for hedging and not for naked speculation.

The ban on derivative trades without underlying equity could impact nearly a third of ODI subscribers, who currently deal only in