Furthering its restrictions on participatory notes or Offshore Derivative Instruments (ODIs), markets regulator Securities and Exchange Board of India (SEBI) has banned foreign portfolio investors (FPIs) from issuing such instruments where the underlying assets are derivatives.
In its latest circular ‘Guidelines for issuance of ODIs, with derivative as underlying, by the ODI issuing FPIs’, the SEBI said that P-Note issuances on derivatives can be issued only for the purpose of hedging with respect to the equity shares held. Besides, it said that in cases where the underlying derivatives position are not for purpose of hedging the equity shares, the issuing FPI has to liquidate such ODIs latest by the date of maturity or by December 31, 2020, whichever is earlier.
The circular further said that a certificate has to be issued by the compliance officer (or equivalent) of the ODI-issuing FPI in the case of issuance of fresh ODIs with derivatives as underlying and it should be certified that the derivatives position, on which the ODI is being issued, is only for hedging the equity shares held by it, on a one-to-one basis. Besides, SEBI also asked to submit the monthly ODI reports along with this certificate.