Govt, Sebi to discourage investments through PNs
Government and the Securities & Exchange Board of India (Sebi) are finally veering around to encouraging foreign institutional investors (FIIs) to invest directly in the equity markets instead of using participatory notes (PNs).
By Sidhartha, TNN |
NEW DELHI: Government and the Securities & Exchange Board of India (Sebi) are finally veering around to encouraging foreign institutional investors (FIIs) to invest directly in the equity markets instead of using participatory notes (PNs).
At its board meeting later this month, Sebi is expected to discuss various ways to encourage foreign investors to invest through sub-accounts of FIIs instead of using PNs that are in the nature of IOUs often used to disguise the identity of the ultimate investor.
The move comes amidst fears of potential misuse articulated by Reserve Bank of India on a number of occasions in the past as also by high-powered panels like the one on capital account convertibility under S S Tarapore.
Over the last few years, the use of PNs by FIIs has been on the rise with the share of the instrument in portfolio investment rising to 43% at the end of April from around 25% at the start of 2005 and nearly 33% at the end of 2006.
Equity investment by FIIs at the end of April 2007 was estimated at a little over $52 billion, whose market capitalisation was estimated to be in the region of $150 billion. While Sebi is yet to finalise the proposed simplification, sources said the idea was to reduce compliance cost and simplify procedures.
ADVERTISEMENT
"A large number of investors like endowment and provident funds have chosen to use PNs to avoid high compliance and certification costs in their home countries. We are looking at easing some of the rules. If they are coming through the window then why not open the door," said a source.While both PNs and sub-accounts provide investors the option to invest in India through FIIs, the latter is seen as more transparent since the identity of the investor is known. Over the last few years, RBI has been worried over the use of PNs but Sebi has countered it by saying that FIIs were following the know-your customer norms and knew the identity of the investor.
But sources conceded that at times FIIs know the identity of the investor to whom the PN was issued but the certificate could be sold to another investor who may not disclose his identity.
Even the government, which did not want to tamper with the structure with PNs fearing that foreign investors may withdraw investment from India, is now willing to alter the mechanism though banning it immediately is being ruled out.
ADVERTISEMENT
Over the last few months, the government first sought details from Sebi on its regulatory powers and then suggested that the rules for entry through sub-accounts should be eased.Courtesy: www.timesofindia.com
Download
The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.
The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.
Download
The Economic Times News App for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.
The Economic Times News App for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.
ADVERTISEMENT
