SEBI Restricts Use Of P-Note Derivatives
By Team Legistify / 2017-07-11

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SEBI has put in place restrictions on Foreign Portfolio Investors (FPIs) from issuing participatory notes where the underlying asset is a derivative, as the markets regulator continues to make norms stricter for such instruments.

Now, participatory notes or Offshore Derivative Instruments (ODIs) where the derivative is underlying can be issued only for the purpose of hedging with respect to the equity shares held.

Besides, the watchdog has said that existing positions on unhedged P-Note derivatives have to be liquidated by the end of December 2020.

“The ODI issuing FPIs shall not be allowed to issue ODIs with derivative as underlying, with the exception of those derivative positions that are taken by the ODI-issuing FPI for hedging the equity shares held by it, on a one-to-one basis,” according to a SEBI circular.

In cases where the underlying derivatives position are not for purpose of hedging the equity shares, the issuing FPI has to liquidate such P-Notes latest by the date of maturity or by December 31, 2020, whichever is earlier.

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