The Reserve Bank of India and stock market watchdog Securities and Exchange Board of India differ on the issue of banning participatory notes with the banking regulator suggesting such instruments should not be permitted, the Lok Sabha was informed on Friday.
"The Reserve Bank is of the opinion that PNs should not be permitted and accordingly it has suggested that no fresh issuance of PNs be allowed," Minister of State for Finance P K Bansal said in a written reply. "However, Sebi has not called for banning PNs," he added.
Participatory notes are instruments through which foreign investors trade in the country's equity and debt markets. Such instruments have raised concern in certain quarters as it is virtually impossible to find out who owns the money being invested in the markets.
A government-appointed
expert group, headed by then chief economic advisor Ashok Lahiri, had examined the issue of PNs and recommended that the current dispensation may continue, he said, Bansal said.
As per the Sebi Act, an FII may issue PNs with Indian instruments (equity, debt or derivative) as underlying securities, to a subscriber being a regulated entity. Further downstream issuance of PNs, if any, can also be done to regulated entities only, he said.
The regulations also require the FII, which issues PNs, to file a report at the end of each month disclosing the names of all subscribers to the PNs issued by it, he said.
The FII also gives an undertaking wherein it declares that it or its associates have not issued, subscribed or purchased any PNs to and from Indian residents, NRIs, PIOs and OCBs during the reporting period, Bansal said.
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