Participatory notes are issued by FIIs to their unregistered clients who want to put in the Indian equity market but do non desire to run into the revelation demands to make so. Thus the modus operandi they opt for is to put their money with the fund companies ( FIIs ) . who will put in Indian market on their behalf. The fund company is registered with SEBI in India and issues participatory notes to these investors as a cogent evidence of their investing.

Participatory notes are instruments used by foreign financess non registered in the state to merchandise in the domestic market. SEBI’s Concern and opinions sing these notes: Participatory Notes have ever been a bone of contention for SEBI as the individuality of the investors is non known. In 2003. there was a roar in the stock market chiefly due to a batch of foreign financess. This besides led to a batch of volatility in the Indian market because a batch of Investment was done through Participatory Notes.

So in 2003. SEBI amended ordinances associating to foreign institutional investors to integrate a new 10 point codification of behavior and inserted a clause seeking revelation of information with respect to participatory notes. The codification seeks conformity to good corporate administration criterions and SEBI ordinances. SEBI has clarified that there is no alteration in the regulations associating to FIIs except for the strengthening of KYC Norms. They have besides given a opinion which states that from Now on. The PNs can merely be issued to Registered Entities.

The existent investment parties must be registered with the regulator of their state of Incorporation. In add-on. to ease the procedure of passage. derivative instruments already issued and outstanding against un-regulated entities will non be required to be terminated instantly. It has been decided that the said contracts will be permitted to run out or to be wound – down on adulthood. or within a period of 5 old ages. whichever is earlier.