Sebi orders more transparency on PNs

Foreign institutional investors (FIIs) who are coming through the PN route were earlier allowed to disclose their positions on a weekly basis.

Short-position or short selling refers to sale of a borrowed security with the expectation that the asset will fall in value so that one can take delivery of the same at a lower price point and thus earn profit.

Participatory notes are instruments through which entities not registered in the country invest in the domestic stock market and as such this is known for its opaqueness. PNs are known for their lack of transparency,as it is difficult to know their ultimate beneficiaries.

According to analysts,the Sebi directive to FIIs to disclose their short-positions will be effective from July 2,will also help control volatility in the markets.

“The Sebi move is a step forward in a direction to make FIIs investment more transparent and to make them more accountable,while making investment in the domestic markets,” SMC Capitals equity head Jagannadham Thunuguntla said.

“The regulator’s direction may make FIIs,who are coming through the PN routes,cautions to invest in the markets in the short-run. But,for long-term it will help bring in more transparency and will help to put a check on sudden market volatility in the market,” CNI Research chairman and managing director Kishore P Ostwal said.

As such,the Reserve Bank has for long been demanding a ban on PNs stating they are not transparent deals,but the Sebi and finance ministry were against this claiming that PNs could be traced to their ultimate beneficiaries. The current move is aimed at continuing the process of making this route more transparent,analysts said.

The new move comes along with the Sebi direction to relax the reporting requirement on lending of securities by FIIs for the purpose of short-selling. Now FIIs are required to make their disclosures only on a weekly basis to the regulator against the earlier daily reporting.