The decline in stock values has created room for the issue of fresh participatory notes, but there are not many takers.

P-notes are off-shore derivative instruments issued to foreign investors having securities as underlying.

The Securities and Exchange Board of India had banned the issue of derivative P-notes on October 25 last year and restricted the issue of P-notes up to 40 per cent of the assets under custodians.

Since then, more than 200 new FIIs and over 500 sub- accounts have registered with the market regulator.

With the P-note holders registering themselves, many P-notes have been regularised and most FIIs now have the leg room to issue 5 per cent incremental P-notes and fresh P-notes against cancellations.

"When the Sebi restricted the issue of P-notes, there was virtually no room for issue of fresh P-notes. As per our estimates, it is now possible to bring out P-notes worth 25 per cent of the FII assets under custodians (AUC)," according to a FII broker.

Moreover, the brokers have started focusing on direct FII money rather than the P-note investments.

"The margins on P-note deals were 20 basis points (bps), whereas the margins on direct investments are higher," said a foreign broking head of a leading domestic broking company.

The investors stand to gain from the lower transaction costs.

The new P-note regime and simpler FII registration procedures are being implemented based on the circular issued by Sebi on October 25 last year.

Those changes are now being accommodated in the FII regulations to make them more effective.