Curbing speculative flows

Sebi's move against p-notes is timely

The latest proposal by the Securities and Exchange Board of India (Sebi) regarding participatory notes (p-notes) is consistent with its strategy of gradually phasing out this opaque instrument. It is proposed to outlaw the use of p-notes for “naked speculation” in derivatives. Sebi also wishes to levy a fee of $1,000 per p-note on the issuer, thus raising the cost of usage. A p-note may be issued by a foreign portfolio investor (FPI) to one of its clients, which does not wish to be burdened with the hassle of enlisting as an FPI on its own account. The FPI is