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What are participatory notes? Research Team | Posted On Monday, April 13,2009, 09:50 AM

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What are participatory notes?



1. What are P-notes?

P-Notes are instruments like contract notes issued by FIIs to overseas investors who cannot directly invest in equity market as they are not registered. Out of over 1,100 FIIs registered with SEBI, only 34 have been issuing PNs.

2. Who is a Foreign Institutional Investor (FII)?

FII means an entity established or incorporated outside India which proposes to make investment in India.

3. What is the procedure for change of local custodian?

In case of change of the local custodian of the FII / sub-account, the change should be intimated to SEBI by the FII. On receipt of no objection from the existing custodian and acceptance from the proposed custodian, the change of custodian would be approved - by SEBI.

4. What is the procedure for registration as FII / sub account under 100% debt route?

The procedure for registration of FII/sub account under 100% debt route is similar to that of normal funds besides a clear statement by the applicant that it wishes to be registered as FII/sub account under 100% debt route. However, Government of India allocates the overall investment limit for 100% debt funds annually. The grant of investment limit for individual 100% debt funds is within this overall limit. The funds have to seek further investment limit in case the limit allotted to them is exhausted and they wish to invest further.

5. Can a Foreign Institutional Investor having an existing account with one custodian open an account with other custodian for its sub- accounts?

Yes. A Foreign Institutional Investor having an account with one custodian can open accounts with different custodians for its different sub-accounts. However, one sub-account cannot be custodial with more than one custodian.

6. What is the procedure if an existing sub-account wants to get registered as a Foreign Institutional Investor?

In case if a registered sub-account wishes to get it registered as a Foreign Institutional Investor, then it will have to apply in Form A to SEBI for the same and has to satisfy all the eligibility criteria norms mentioned in SEBI (Foreign Institutional Investor) Regulations, 1995. It should also submit a letter from the old FII indicating its 'No-objection' to such registration.

7. In case of merger or takeover, in case if the registered Foreign Institutional Investor loses its existence, then can the SEBI FII registration be transferred to the surviving entity?

No. SEBI FII Registration is not transferable. The surviving entity has to obtain fresh registration as an FII from SEBI.

8. What are the investment limits for FII/ sub-accounts?

The sub-account which is not a foreign individual/ corporate can individually invests upto 10%. The limit for each foreign corporate/ individual is 5%. These limits are within the overall limit of 24% / 49% or the sectoral caps as the case may be.

9. Who all are included under the definition of foreign individual?

Foreign individuals mean all foreign residents other than NRI and Overseas Corporate Bodies.

10. On what basis is the FII investment limit calculated?

Investment limit by all registered FIIs or sub accounts in primary or secondary markets under Portfolio Investment Scheme is subject to a ceiling of 24% of issued share capital of a company. The limit can be extended upto 49% per sectoral cap if the general body of the company approves it.

11. What is the validity period of sub-account registration?

The registration of the sub-account is concurrent with its registered FII and the registration of the sub-account expires with the expiry of registration of the FII. Moreover, if the registration of the FII is suspended or cancelled, the registration of its sub-account is also suspended/ cancelled as the case may be.

12. Can an FII/sub-account trade after its registration has expired?

No. if it is not interested in renewal but has certain residual assets, it should apply for disinvestment in terms of Circular No. FITTC/CUST/12/2001 dated June 04, 2001 and abides by the guidelines specified in this regard.

13. Can protected cell companies/cells incorporated in Mauritius be registered as FIIs/sub-accounts?

No. Companies/cells incorporated in Mauritius cannot be registered as FIIs/sub-accounts

14. Can FII/sub-accounts trade in derivatives?

Yes subject to operational guidelines as specified by SEBI/RBI/various regulatory authorities from time to time.

15. What is the procedure for renewal of FII/sub-account registration?

They have to apply before 3 months of the expiry of registration in Form A. Circular No FITTC/CUST/09/2000 dated September 21, 2000 may be referred.

16. What is a Designated Bank?

Designated Bank means any bank in India which has been authorized by the Reserve Bank of India to act as a banker to FII.

17. Who is a Domestic Custodian?

Domestic Custodian means any entity registered with SEBI to carry on the activity of providing custodial services in respect of securities.

18. What is a Broad Based Fund?

Broad Based Fund means a fund established or incorporated outside India, which has at least twenty investors with no single individual investor holding more than 10% shares or units of the fund. If the fund has institutional investor(s), it shall not be necessary for the fund to have twenty investors. Further that if the fund has an institutional investor holding more than 10% of shares or units in the fund, then the institutional investor must itself be broad based fund.

19. Who can get registered as FII?

Following entities / funds are eligible to get registered as FII :
  • Pension Funds
  • Mutual Funds
  • Insurance Companies
  • Investment Trusts
  • Banks
  • University Funds
  • Endowments
  • Foundations
  • Charitable Trusts / Charitable Societies

Further, following entities proposing to invest on behalf of broad based funds, are also eligible to be registered as FIIs :

  • Asset Management Companies
  • Institutional Portfolio Managers
  • Trustees
  • Power of Attorney Holders

20. What are the parameters on which SEBI decides FII applicants’ eligibility?

  • Applicant’s track record, professional competence, financial soundness, experience, general reputation of fairness and integrity. (The applicant should have been in existence for at least one year)
  • Whether the applicant is registered with and regulated by an appropriate Foreign Regulatory Authority in the same capacity in which the application is filed with SEBI.
  • Whether the applicant is a fit & proper person.

21. Which form needs to be filled in when applying for FII registration?

"Form A" as prescribed in SEBI (FII) Regulations, 1995.

22. Which documents need to be sent with "Form A"?

  • Certified copy of relevant clauses (clauses permitting the stated activities) of Memorandum of Association, Article of Association or Article of Incorporation.
  • Audited financial statement and annual report for the last one year (period covered should not be less than twelve months

23. How much is the fee for registration as FII?

The registration fee is US $ 5,000.

24. When is the registration fee payable?

Fee is payable at the time of submitting the application for registration.

25. What is the mode of payment?

Demand Draft in favor of "Securities and Exchange Board of India" payable at New York

26. How many days it takes to get registered as FII?

SEBI generally takes seven working days in granting FII registration. However, in cases where the information furnished by the applicants is incomplete, seven days shall be counted from the days when all necessary information sought, reaches SEBI.

In cases where the applicant is bank and subsidiary of a bank, SEBI seeks comments from the Reserve Bank of India (RBI). In such cases, 7 working days would be counted from the day no objection is received from RBI.

27. What is the validity period of FII registration?

The FII registration is valid for 5 years. After expiry of 5 years, the registration needs to be renewed.

28. What is the process of renewal?

The process is same as initial registration. Along with "Form A" and all the relevant documents, the applicants are required to fill in additional form (Annexure 1) while applying for renewal.

29. Is there any renewal fee?

Yes, US $ 5,000 needs to be paid for renewal of FII registration.

30. When the application for renewal should be submitted?

Three months

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