Context:
The Securities and Exchange Board of India (Sebi) barred foreign portfolio investors from issuing offshore derivative instruments (ODIs), locally referred to as participatory or P-notes, with derivatives as an underlying asset.
Highlights:
- The foreign portfolio investors (FPIs) were also asked to gather the holding information of all those investors on the other side of such instruments.
- The total outstanding ODIs as of end July amounted to ₹1.58 lakh crores. FPIs hold less than two percentage of this amount under the custody of India.
Participatory notes (P-notes)
Participatory notes (P-notes) are financial instruments that allow foreign investors to invest in India’s stock market without registering with the Securities and Exchange Board of India (SEBI). P-notes are issued by registered foreign institutional investors (FIIs) to overseas investors.
- How they work
- P-notes acts as a substitute for shares of Indian companies.
- History
- SEBI introduced P-notes back in 2000 to allow foreign investors to enter the Indian market without registering as FIIs.
Offshore Derivative Instruments (ODIs)
ODIs are vehicles that allow foreign investors to invest in Indian equities or equity derivatives without registering in the country.
Foreign Institutional Investors (FIIs)
Foreign Institutional Investors (FIIs) are investors or funds that invest in a country apart from the one where they are registered or headquartered. FIIs include investment banks, mutual funds, hedge funds, and pension funds.
- Improving capital flow:
- FIIs can increase the liquidity and depth of a country’s capital market by improving the flow of capital in the country.
- Bringing capital to businesses:
- FIIs can bring capital and funds to businesses in developing countries.
