Promoter-banker-FII nexus under Sebi scanner for P-Note abusePromoter-banker-FII nexus under Sebi scanner for P-Note abuse

The Securities and Exchange Board of India (Sebi) has initiated investigation into a possible nexus between promoters of listed companies, investment bankers and foreign funds for suspected insider trading and market manipulation through misuse of participatory notes (P- Notes).

A senior official confirmed that those under scanner include funds operating from the financial centres of Mauritius, Singapore and Hong Kong. The role of some financial institutions from the US, Europe is also being looked into. Sebi is in the process of seeking details from these banks and the listed companies concerned.

The probe so far has suggested that foreign funds, including well- known hedge funds that recently expanded their exposure to Indian markets, could have violated norms to make illicit gains. In many cases, trades were done through offshore derivative instruments, commonly known as P-Notes.

Sebi is also counting on help from foreign market regulators in its widened probe into these suspected cases of manipulation. Sebi has already barred a hedge fund managed by Hong Kongbased Factorial Capital Management from the Indian markets through an interim order on ' insider trading' charges in L&T Finance shares.

Some hedge funds- operating through the fabled tax havens of Cayman Islands, Isle of Man and British Virgin Islands- may be routing money back into the markets here to evade taxes, sources said. PNotes allow foreign investors enter Indian markets through registered foreign institutional investors (FIIs) and exempts them from getting themselves registered directly with Sebi. This saves on time and costs for investors but the flip side is that the route can also be used for round tripping of black money.

P- Notes used to account for a major chunk of FII in recent years, but their share has fallen after Sebi tightened the disclosure norms and other regulations for such investment.

The government has been concerned over the increase as some of these PNote investment could be used to channel black money.

Investment in Indian shares through P- Notes, a preferred route for overseas high net worth individuals and hedge funds, surged to a six- year at Rs  2.12 lakh crore in May. The total value of P- Note investment in India (equity, debt and derivatives) rose to Rs  2,11,740 crore at the end of May from Rs  1,87,486 crore in the preceding month.

Courtesy: Mail Today