SEBI (Securities Board and Exchange of India) is making strict norms for both Foreign Portfolio Investor and P-note holders in which holders will have to disclosure requirements for issuance of P-notes. These norms are to be soon imposed so as to know the beneficial owners of these instruments at any time. P-notes are derivative instruments that are issued by registered FPI (foreign portfolio investors) to overseas investors to facilitate them to trade in Indian stock market without getting registered with the regulator. In the present scenario, for the P-note subscribers it is not mandatory to take prior permission of the issuer when they wish to transfer it to another offshore investor. All these shall now be regulated by the SEBI to curb black money laundering in the Indian Market. The norms and proposed changes came into the concerns when Special Investigation Team (SIT) was appointed by the Supreme Court on the issue of black money.
The official stated in the released post of their website- “In order to tighten the ODI (offshore derivative instrument or PNs) regime and have more control over issuance and transfer of ODIs, it has been decided that the ODI subscribers will have to seek prior permission of the original ODI issuer for further/onward issuance/transfer of ODIs”.
At present, P-note subscribers are not required to take prior permission of the P-note issuer for transferring it to another investor offshore. This would enable the regulator to know the complete transfer trail of P-notes on a monthly basis.
Tejesh Chitlangi, partner, IC Legal said- “Since SEBI cannot exercise direct control over the downstream purchasers and there is where this route has been mis-utilised the most, the issuer FPIs have been made more accountable in the entire issuance process. Such steps may cause some knee-jerk reaction in the markets but are likely to cleanse the system in the long run”.
Now the regulator has made it mandatory for all the P-note issuers to report the details of the holder and all the intermediate transfers that have taken place during the month, all to SEBI.
Regulations for P-note issuer:
P-note issuers now will have to follow the Indian know-your client (KYC) and anti- money laundering norms.
P-note issuers will now have to identify the beneficial owners in the subscriber entities. This is told in reference to those who hold in excess of the threshold that is 25% in case of a company and 15% in case of partnership firms and trusts.
In suspicious transactions scenarios, now P-note issuers would have to file suspicious transaction reports with the Indian Financial Intelligence Unit on the notes issued by them. And at the time of on-boarding every year they will also have to carry out know-your client review.
SEBI has also taken a few more decisions regarding the Dividend distribution policy and Consent rules. SEBI has not only tightened the norm with just P-note holders but it is also regulating the top listed companies and their dividend policies.
Verdict: SEBI norms on P-notes shall definitely regulate the flow of black money but at the same time drop an adverse affect when it comes to inflow of the money.
By: Mrs. Viveka Nagar