Market regulator Sebi notifies rules to levy fee on participatory notes

Markets regulator Sebi has notified stricter participatory notes (P-Notes) norms stipulating a fee of USD 1,000 that will be levied on each instrument to check any misuse for channelising black money. The new measures, which follow a slew of other steps taken by Sebi in the recent past, come at a time when the value of foreign investments through participatory notes or offshore derivative instruments (ODIs) has surged to a seven- month high of about Rs 1.81 lakh crore at May-end.

While such investments used to account for more than half of overall foreign portfolio investments at one point, their share has now fallen to just a little over 6 per cent. Still, concerns remain that P-Notes are misused by some to channelise black money from abroad into the country through the stock markets. The regulator will levy a “regulatory fee” of USD 1,000 on each ODI subscriber, to be collected and deposited by the issuing foreign portfolio investor (FPI) once every three years, starting from April 1, 2017.

“An FPI shall collect the regulatory fee of USD 1,000 or any other amount, as may be specified by the board from time to time, from every subscriber of offshore derivative instrument issued by it and deposit the same with the board by way of electronic transfer,” Sebi said in a notification dated July 20. The regulatory fee would be deposited once every three years. “(It has been) provided that for the block of three years beginning April 1, 2017, an FPI shall collect and deposit the regulatory fee within two months from the date of notification,” the Securities and Exchange Board of India (Sebi) noted.

The regulator has amended Sebi (FPI) Regulations, 2014, to implement the decision. P-Notes are issued by registered FPIs to overseas investors who wish to be part of the Indian stock markets without registering themselves directly. They, however, need to go through a proper due diligence process. Last month, Sebi at its board meeting had approved a proposal to prohibit ODIs from being issued against derivatives, except those which are used for hedging purposes.

Securities and Exchange Board of India ( SEBI )