Friday, October 26
SEBI Decision on P Notes
Securities and Exchange Board of India (SEBI) finally came out with the new P- Notes policy.The proposals made by the SEBI in the draft have been approved by the board and will come into immediate effect from October 25.
Following decision taken at the SEBI meet were made public by M Damodaran, Chairman, SEBI on Thursday:
1) Further issue of P-Notes by Sub A/C to be discontinued immediately. P-Notes can`t be issued with offshore derivative Instruments (ODIs) as underlying
2) Sub A/C to unwind their positions in 18 months.
3) Disallows issuance of P -Notes with underlying as derivative.
4) However, Proprietary, and corporate Sub A/C can continue their business till they get registered.
5) Of the 20 Sub A/C that applied for registration through the front door, few of them have been approved and the rest are under consideration which can however continue as normal during the transition period .
6) Pension funds can register as FIIs.
7) Those with notional value of P-Notes over 40% AUC (assets under custody) would issue P-Notes close to equivalent position.
8) Those with less than 40% AUC can issue 5% incremental P-Notes.
9) Those with greater than 40% AUC can stick to current exposure.
10) Date of calculation of AUC will be on September 30.
11) Broadbased sub accounts must have at least 20 investors. Broadbased Sub A/C can`t have a single person holding over 49% as against the 10% before.
12) Pension fund, charity, endowments will be treated as separated entities and they can get registered.
13) SEBI will form a committee of board that will focus on surveillance by independent members of the board. The board will enhance surveillance that will be done consistently.
14) SEBI cleared proponents enabling SMEs to access this category. A separate exchange for SME segment will be established for which a new policy framework needs to be set out.
The SEBI headed said that all those interested will be invited to set up exchange provided they meet the eligibility criteria.
Damodaran, clearly and firmly pointed out that P-Notes will be issued only to those who are regulated and registered as per the FII regulation of 2004. Earlier permission was given to those who were registered but not regulated.
The SEBI head put to rest all rumors, speculations and views with regards to the new P-Notes policy. In his elaborate speech he made clear that new policy had taken shape to filter out the anonymous foreign funds into the Indian share market, and was ready to speed up regulatory clearance for foreigners keen to invest transparently. The SEBI stand was all against the back door entry of FIIs and thereby it put an end to it with immediate effect.
The SEBI stand came out openly stating that on market surveillance was the key to all moves. Attempts will be made to make the Indian markets a safe place for trading. Damodaran also mentioned about forming a committee chaired by an independent member, a non-executed member of the board of directors of the concerned exchange.
He stressed that this was not the end of the announcements to be made by SEBI, FII regulation will continue to be under the SEBI focus taking into account three prominent issues;Firstly, access to Indian market, secondly, more products to be introduced and thirdly, better-cost competitiveness.
He elaborated that permitting access to Indian market will be under the focus of the regulatory body. Taking into consideration the consistent growth in the Indian market, wherein India has emerged as the leading player in the global economy, there should be far more products introduced in the market, which will be released in detail as per the expertise of the Ram Mohan Roy committee of derivatives.Along with the access and more products, cost competitiveness will hold major attention for time to time.
The SEBI stand was well backed by the Government wherein the Finance Minister P Chidambaram while commenting on the P-notes stand prior to SEBI clarifications had indicated that the SEBI proposals would become regulations with or without modifications.
Thus, on an overall basis SEBI went ahead with the proposal it had come out with. It has maintained its firm approach on the anonymous money entering the market and has initiated the moves to curb it.