Retaining the original proposal, Sebi said those FIIs which have issued P-Notes of more than 40 per cent of their assets, could issue such instruments only if they cancel, redeem, or close their existing PNs. FIIs which have issued P-Notes less than 40 per cent of their assets under custody can issue additional instruments at the rate of five per cent of their assets every year. “Only a handful of people are above the 40 per cent limit. We arrived at the 40 per cent by looking at numbers that were available with the custodians and that it wouldn’t be hugely disruptive,” Damodaran said.

Sebi came out with a discussion paper on curbing PNs on October 16. The plans led to a stock market crash the next day with the Sensex plummeting 1,700 points within minutes of opening. However, the market recovered after Finance Minister P Chidambaram and Damodaran assured that the steps were not aimed at curbing P-notes. Almost half of the foreign money that flowed into the markets recently was through P-Notes. A record $17.5 billion came to the Indian market in 2007, propelling the Sensex to new peaks daily.

Though the Sensex has been volatile and lost over 1500 points in the next three sessions after the Sebi proposal last week, the market has recouped most of the losses this week. Today, the Sensex closed with a gain of 258 points at 18,770.89.

At its meeting today, the regulator also decided to register entities like pension funds as a FII category. “The philosophy underlying this is to see that quality investors come in, and therefore pension funds, foundations, endowments, university funds, charitable funds or societies, which do not strictly fit in to the framework today, are being enabled by keeping them as a category that we will recognise,” he said.

... contd.