The Hindu : Business : SEBI may impose curbs on PNs

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Wednesday, Oct 17, 2007
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SEBI may impose curbs on PNs

Special Correspondent

MUMBAI: The Securities and Exchange Board of India on Tuesday proposed that the foreign institutional investors (FIIs) and their sub-accounts should not issue or renew overseas derivatives instruments (ODIs) like Participatory Notes (PNs) with underlying as derivatives with immediate effect. They are required to wind up the current position over 18 months, during which period SEBI will review the position from time to time. Further issuance of ODIs by the sub-accounts of FIIs will be discontinued with immediate effect. The FIIs who are currently issuing ODIs with notional value of PNs outstanding (excluding derivatives) as a percentage of their Assets Under Custody (AUC) in India of less than 40 per cent shall be allowed to issue further ODIs only at the incremental rate of 5 per cent of their AUC in India.

Those FIIs with notional value of PNs outstanding (excluding derivatives) as a percentage of their AUC in India of more than 40 per cent shall issue PNs only against cancellation or redemption or closing out of the existing PNs of at least equivalent amount. In view of the urgency, SEBI requested that any comments on these proposals would be sent to odireporting@sebi.gov.in by October 20. SEBI also stated that currently 34 FIIs or Sub-accounts issue ODIs. This number was 14 in March 2004. The notional value of PNs outstanding which was at Rs.31,875 crores (20 per cent of FIIs’ AUC ) in March 2004, has grown to Rs. 3,53,484 crore (51.6 per cent of AUC) by August 2007.

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