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Wednesday, October 17, 2007

What are participatory notes or P-Notes or PNs in Indian Stock Market?

The reason in Stock market steep fall in the morning was on the news that participatory notes would be banned in India.

But the question in any lame investor's mind is - what are these participatory notes or P-Notes or PNs?

PNs are financial instruments used by investors or hedge funds that are not registered with Sebi, to invest in Indian shares. FIIs and their sub-accounts buy Indian securities and then issue PNs to foreign investors with these securities as the underlying.

Once the Sebi proposals are operationalized, only FIIs whose outstanding notes do not exceed 40% of their total asset holding in India will be allowed to issue fresh ones. For instruments already issued by FII sub-accounts, Sebi has given a window of 18 months to wind up existing positions.

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