Amid concerns over misuse of stock markets for laundering of black money, including through P-Notes, regulator Sebi has said it has a strong surveillance system that generates over 100 alerts a day and all cases of manipulation are being dealt with sternly.
Sebi has put in place a strong deterrence to check any misuse of participatory notes and these can be issued only by well-regulated overseas entities such as sovereign wealth funds and pension funds of foreign governments.
Still, Sebi is open to further strengthen its systems and regulations, if required, to put additional checks against any possible misuse of this route.
The routes which were found to be more prone for being misused were IPOs, allotment of preference shares in secondary markets and the issuance of GDRs in foreign locations.
In a stern warning to those looking to misuse the market platform for conversion of black money, Sebi Chairman U K Sinha said the regulator has already busted a large number of rackets who were indulging in such activities and it is now very difficult to escape its surveillance systems.
"We have strengthened our surveillance systems. In our surveillance systems, all the trading that happens in our country gets captured. We get alerts for all the trading. We are getting at least 100 alerts per day from our systems," Sinha told PTI in an interview.
Stating that the manipulators are using various methods, including circular trading and marking the close, the Sebi chief said the regulator is getting alerts on all of them.
"Each and every alert is followed further. During these follow-ups we found that there are these companies where the price has gone up by 10-times, 20-times and even more in some cases. Our surveillance systems caught this signal and we started probing," Sinha said, while adding that action has been taken in these cases and further prosecution is underway.
After active deliberations, regulator had strengthened its P-Note regulations in 2011, after which restrictions have been put in place on who can issue these instruments and to whom these can be issued, while the information about the beneficiary owners needs to be mandatorily given to Sebi.
While Sebi has already put in place a robust system to check any misuse of the P-Note route, it is open to make any further changes if required, Sinha said.
He, however, clarified that neither the Special Investigation Team (SIT) on black money nor the government has suggested closing the P-Note route and it was a business requirement for a certain class of foreign investors.
P-Notes are typically Offshore Derivative Instruments issued abroad by Foreign Institutional Investors (FIIs) or their associates against the underlying Indian securities.
While norms have been tightened considerably for P-Notes over the years, they remain popular among foreign investors since they allow them to invest in Indian markets without undergoing the significant cost and time implications of directly investing in the India.
Following SIT's recommendations earlier this month to plug any loopholes that may allow misuse of the P-Notes, the stock markets had tanked sharply on concerns that any move to clamp down on these instruments might lead to huge outflow of foreign funds.
