The Hindu : Front Page : New rules for regulating PNs

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Friday, Oct 26, 2007
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New rules for regulating PNs

Mumbai: Market regulator Securities and Exchange Board of India (SEBI) on Thursday announced new rules to regulate foreign investments through instruments such as participatory notes (PNs). Last week, proposals over the same had caused a meltdown in the stock market, prompting Finance Minister P. Chidambaram to assuage the fears of investors.

The rules, to be effective from Friday, include no fresh issuance of PNs in derivatives, winding up the existing positions in 18 months, and curbs on such instruments in the spot market.

Ending the debate on the issue, the SEBI Board considered the proposals on Thursday and virtually retained all the clauses that the market regulator had put up for public comments last week. SEBI had taken the views of foreign institutional investors (FIIs) on board following a suggestion from Mr. Chidambaram.

In derivatives, FIIs and their sub-accounts cannot issue fresh PNs and would have to wind up their current position in 18 months.

In the spot market, FIIs would not be allowed to issue PNs more than 40 per cent of their assets under custody. The reference date for calculating such assets would be September 30, SEBI said.

While the exercise was aimed at curtailing the flow of anonymous funds into the Indian equities market, SEBI Chairman M. Damodaran said as of now there was no evidence of terror funding flowing into the capital markets. — PTI

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