Sebi Proposes Tighter Rules, $1,000 Regulatory Fee For Participatory Notes

The Securities and Exchange Board of India (Sebi) on Monday proposed to tighten rules on offshore derivative instruments (ODI) - which include participatory notes or P-Notes - by imposing "regulatory fees" and prohibiting the sales of such products unless they are issued for hedging purposes. In a consultation paper, market regulator Sebi proposed that the issuers be given till December 31, 2020 to wind down any ODIs issued for speculative purposes.

Those undertaken for hedging would be allowed, however.

In addition, Sebi proposed to set a fee of $1,000 every three years starting on April 1, 2017 on ODI issuers and also on each investor in these instruments in order to "discourage the ODI subscribers from taking ODI route" and encourage them instead to register themselves as foreign portfolio investors.

ODIs are instruments such as participatory notes created by banks to track Indian shares, debt and derivatives.

The investments have been highly controversial because of regulatory suspicions they are a conduit for money laundering or the channeling of unaccounted wealth held by Indians abroad into domestic markets.

Sebi said interested parties must submit comments to it by June 12.