The Securities and Exchange Board of India, or Sebi, has released its report on P-Notes, or participatory notes. It suggests that FIIs should not renew or issue PNs with underlying as derivatives. It also wants sub-accounts to not issue PNs. The regulator has asked for comments on its paper by October 20.
From a policy perspective, the Sebi move looks like a positive move, but it has come too late. An important part is that everytime the RBI and Sebi have spoken about P-Notes, the Finance Ministry has come and said that they have nothing against the P-Notes.
Now that the draft has come in, it seems that the Fin Min has changed its stance on P-Notes and says that P-Notes are not the right entity through which to enter India and further more, they have a put a 40% cap on inflows into India through P-Notes.
The FII positions in F&O are at Rs 73,000 crore. A lot of the positions are short positions in that sense. The FIIs have roughly around Rs 20,000 crore of positions in the Index. In stock futures, their positions are around Rs 37-38,000 crore.
The Sebi has given 18 months for the FIIs to unwind their positions, which is not exactly right because, at one time you only issue contract notes for 3 months. So basically, you cannot roll over your positions. You have to shift your position to registered FIIs.
The Securities and Exchange Board of India, or 
