Participatory notes

Govt not to regulate PNs: Chidambaram
Bloomberg / New Delhi August 09, 2007
A day after the government curtailed overseas borrowings by companies, Finance Minister P Chidambaram said there were no plans to regulate participatory notes.
The notes, which are typically derivatives that change in value depending on the performance of the underlying securities, allow hedge funds to invest in the country without having to register with the stock market regulator.

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While a local investor has to give Address Proof , Photo ID Proof and Pan details to even open a savings account, demat a/c or a fixed deposit on the name of KYC norms, Foreign Investors mostly Hedge Funds, NRIs and Pseudo foreign investors (round-trippers who want to save on tax and have high contacts) use the Participatory Notes route to hide their identity under a Sub Account.This is a legal benami route for the rich the high and mighty.

The main reason for their popularity is the anonymity. The other reason for use of PNs by FIIs and Hedge Funds is the ease and the speed with which u can get access to the local markets, as they want to avoid bureaucratic hassles, controls and the paperwork involved in registering with Rbi and Sebi.

It is estimated that over Rs 40,000 crore of PNs have been issued abroad by foreign brokers and are actively traded in some markets.

What kind of accountability is this? Are rules different for different people? Has the FM still not learnt from the abuse of the Mauritius Route by Ketan Parekh and his cronies ? What is Sebi doing ? R we not risking a Mkt meltdown if a few big Hedge Funds decide to one day pack up lock stock and barrel? Remember what happened in South east Asia?

Sucheta dalals articles on PNs

Soaring PNs

Just why PNs attract such strong views

Even the PMs Security advisor M K Narayanan had a few words to say on the security threat posed by some who can easily misuse this system.

RBI is not comfortable with the PN route and has time and again asked for its use to be restricted or to be shut, as it brings in fluctuation in the currency markets.

We live in a strange country where a privileged few can get away with legally breaking laws!

Update : Finally SEBI has addressed the main concern of KYC norms.

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5 thoughts on “Participatory notes

  1. and wow.. today there is a blood bath.. the markets just collapsed…
    and since i often buy on margins.. i do not think i can take any further dip in the markets

  2. p notes should not be banned as they brought capital and India needs capital we should try to diversify our exports and our exports should not be totally driven by U.S.A so that we can absorb shocks and move ahead

  3. ajay i cant agree with u
    why not something better instead so as to keep a check?
    if money pulls money , it is sure to come in India
    on our country growth rate and economic merits

    now a days pns are the most abused route for an indian to park
    his havala money back in India.
    thankfully Damodaran is working on it and has talked about
    gettin hedge funds registered as regular Fiis

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