Market manipulators are still at it, or so it seems. Despite the regulatory efforts to discourage participatory notes (PNs), there has been a sudden surge in PN issuance during the last couple of months by the 'proprietary sub-accounts' of foreign portfolio investors.
The trend has fuelled concerns over the possible use of the sub-account route by certain operators to escape the regulatory glare. The share of PNs as a percentage of total foreign portfolio flows rose from 32% late last year to 42% at the end of March 07, according to data maintained by the regulators.
The rise in issuance of PNs during this period has been attributed mainly to the issuance of such instruments by proprietary sub-accounts. Participatory notes are like a derivative instrument issued against an underlying security (in this case, shares).
These are issued by foreign portfolio investors (FIIs) registered here to overseas clients who may not be eligible to invest in the markets here. The holder of PNs will be able to gain from the capital appreciation of the underlying shares.
Read more in The Economic Times article.
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