SEBI not keen on extension for clearing naked position of P-notes

Jul 14, 2017 10:27 PM IST | Source: Moneycontrol.com

Foreign investors through their banks have urged market regulator to give them an extension of three months to roll over their July positions.

Tarun Sharma

Moneycontrol News

Even as the Securities and Exchange Board of India and Finance Ministry are in discussions for extending the time period for unwinding naked position through P-notes, SEBI may not be in favour of extending the time period.

“SEBI is convinced with its decision and may not want to extend the deadline for three months,” a source close to the development told Moneycontrol. SEBI and Finance Ministry discussions are based on the request of foreign bankers for giving some more time to unwind naked position created through P-Notes.

SEBI had last week issued a circular saying derivatives must be liquidated by the end of 2020 or expiry, whichever is earlier. Foreign investors through their banks have urged market regulator to give them an extension of three months to roll over their July positions.

A market expert who deals with the institutional clients and foreign portfolio investors told Moneycontrol, “Though many brokers don’t expect an extension, two main United States wealth managers are pushing for it as their clients have high exposure — about 10-15 percent in the wind up the position, or they may have taken a position in cash. Most brokers are convinced that in this government, agencies take strict action especially when there is even a hint of black money involved”.

The market regulator is unlikely to budge from its stance. “SEBI has taken a decision after lots of consultation with stakeholders. Mainly stakeholders have convinced with this move. And even regulator is planning single-window option to register as foreign portfolio investor. SEBI has clarified all aspects in the circular published last Friday,” another person close to the development told Moneycontrol.

As per SEBI data in April, the total P-notes investment of  Rs 1.68 lakh crore out of that Rs 1.09 lakh crore in equities and rest in debt and derivative markets. Even foreign portfolio investment via P-notes during the month was down to 6 percent from 6.6 percent in March.

Banks representing their clients are saying that liquidating all contracts at once will create a huge volatility in stocks. These contracts usually have a monthly maturity period which means the existing products will have to be rolled over by the end of this month.