look news india
Ahmedabad: The Securities and Exchange Board of India (Sebi) is planning to tighten regulations by banning proprietary notes (P-notes) or offshore derivative instruments from using the derivatives market. Currently, P-notes can enter the derivatives market only for hedging purposes.
Besides, the market regulator has also proposed to make it mandatory to provide information about beneficial owners for P-notes, which is currently required to be provided only to foreign portfolio investors. It is also proposed to make separate registration mandatory for foreign portfolio investors to issue P-notes.
The move is meant to prevent regulatory arbitrage that exists between those adopting the P-notes and segregated portfolio route and the regulated foreign portfolio investor route. Also, it aims to address concerns about multiple levels of leverage when using derivatives through offshore derivative instruments, even if only for hedging purposes.
P-Notes are a type of offshore derivative instrument used by hedge funds to invest in Indian securities.
However, there is no similar regime for using a separate account to issue offshore derivative instruments.
In a consultation paper issued, the market regulator has also proposed to do away with the existing exemption for issuers of offshore derivative instruments. Sources said if the ban on derivatives is implemented, it could cost Rs 3,000 crore worth of outstanding investments.
