May 19, 2016,
The Securities and Exchange Board of India ( Sebi) has tightened norms for participatory notes (P-notes or PNs) as part of its efforts to curb money laundering through this route.
The Sebi board on Thursday approved the proposal to increase disclosure requirements for issuance of P-notes, which would enable the regulator to know the beneficial owners of these instruments at any point of time.
P-notes are derivative instruments issued by registered foreign portfolio investors to overseas investors to enable them to trade in Indian stocks without having to register with the regulator.
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.
The regulator has also mandated that P-note issuers would have to follow the Indian know-your client (KYC) and anti- money laundering norms instead of the norms prevalent in the jurisdiction of the end beneficial owner or of the P-note issuer, an attempt to bring uniformity in KYC norms. Besides, Sebi has said that P-note issuers would have to identify the beneficial owners in the subscriber entities, who hold in excess of the threshold that is 25 per cent in case of a company and 15 per cent in case of partnership firms and trusts.