Sebi tightens norms to curb black money inflow

Tightening the rules governing issuance of participatory notes (P-Notes) by foreign portfolio investors (FPIs), markets regulator Sebi has introduced Know Your Client (KYC) compliance for holders of these instruments to bring them on a par with domestic investors. Sebi has also sought information on the ultimate beneficiaries of these products. These moves seek to restrict entry of black money into the Indian market.

What are P-notes?

P-Notes are derivative products issued by FPIs in foreign markets which give their holders the right to have a share of the profit and loss from underlying Indian stocks but at the same time help maintain anonymity about the actual owners of those notes.

Background:

For long, the government, regulator and investigative agencies had suspected entry of suspect funds into the Indian market through the P-Note route. This has led Sebi to tighten the rules governing P-Notes, including disclosures about ownership and adherence of anti-money laundering rules.