| The 30-share index of the BSE (Bombay Stock | | | | from the underlying securities go back to the |
| Exchange,India), SENSEX; which reached a life-time | | | | investors. Participatory notes are like contract notes. |
| high upto 18000, crashed 1744 points, after the SEBI | | | | These are issued by FIIs to entities that want to |
| put up its suggestion late on Tuesday evening. The | | | | invest in the Indian stock market but do not want to |
| market was closed for an hour. The p-Notes are said | | | | register themselves with the SEBI. SEBI was not |
| be behind the hugh surge in foreign inflows, which | | | | very happy about participatory notes because they |
| caused the latest market rally. "The steps taken by | | | | have no way to know who owns the underlying |
| SEBI are in the right direction," the Finance Minister of | | | | securities, it feared that hedge funds acting through |
| India - P.Chidambaram said. The Securities and | | | | participatory notes will cause economic volatility in |
| Exchange Board of India (SEBI) on Tuesday | | | | India's exchanges. |
| proposed to tighten the rules for purchase of shares | | | | I feel that this step taken by the SEBI is good step |
| and bonds in Indian companies through the | | | | towards improving clarity of FII investments. Many |
| participatory note (p-Note) route . The move is | | | | are saying this should have been done a lot before, |
| aimed at arresting the surge in foreign inflows | | | | say 6-7 years back. But at that time p-notes were |
| through p-notes. | | | | not that much a highly weighted investment |
| So, what are these p-notes? Why such a havoc | | | | instrument by the FII. As a report says "the notional |
| about them? What makes them so special? P-Notes | | | | value of PNs has zoomed from 20% of FII |
| are financial instruments used by investors or hedge | | | | sub-account assets in March 2004 to 51.6% in August |
| funds that are not registered with the Securities and | | | | 2007, in other words from Rs 31,875 crore to Rs |
| Exchange Board of India to invest in Indian securities. | | | | 3,53,484 crore!". While FIIs were net investors to the |
| Indian-based brokerages buy India-based securities | | | | tune of $8.5 billion during the last calendar year, |
| and then issue participatory notes to foreign | | | | expectations are that they would invest close to $12 |
| investors. Any dividends or capital gains collected | | | | billion this year. |