Lok Sabha Question No. 3346 (UNSTARRED), answered on 2015-12-18
Subject: Participatory Notes
Ministry: FINANCE
Asked by: HARINDER SINGH KHALSA

## MINISTRY OF FINANCE

## DEPARTMENT OF ECONOMIC AFFAIRS

## LOK SABHA UNSTARRED QUESTION NO. 3346 TO BE ANSWERED ON DECEMBER 18, 2015 / AGRAHAYANA 27, 1937 (SAKA)

'Participatory Notes'

## QUESTION

## 3346:  SHRI HARINDER SINGH KHALSA

## Will the Minister of FINANCE be pleased to state:

- (a) the details of entities/FIIs holding Indian equities through Participatory Notes (PN) along with the value of PNs held during the last three years and the current year;
- (b) whether the Government has taken any step to identify Indian entities/ investors using the route of PNs and investing the black money through this route and if so, the details thereof during the said period; and
- (c) the  compliance  statistics  for  the  period  ending  December  2014  along  with  the reasons for continuing PNs route of investment in Indian bourses?

## ANSWER

## MINISTER OF STATE IN THE MINISTRY OF FINANCE (SHRI JAYANT SINHA)

***

(a)    Top 10 Foreign Portfolio Investors (FPIs) issuing Participatory Notes (PNs) with Equity  as  underlying  along  with  the  value  of  PNs  held  during  the  last  three  years  is placed at the Annex.

(b)    FPIs are prohibited from issuing PNs to Resident Indians / Non-Resident Indians (NRIs)  and  they  are  also  required  to  give  an  undertaking  to  this  effect..  There  is  no information with SEBI wherein Indian entities / investors are using the route of PNs and investing the black money through this route. Several safeguards have been put in place to  prevent  the  misuse  of  PN  route  and  to  identify  the  beneficial  owner  of  these instruments.  PNs can be issued only to those entities which are regulated by the relevant regulatory  authority  in  the  countries  of  their  incorporation,  who  comply  with  'Know Your Client' (KYC) norms. An FPI shall also ensure that no further issue or transfer is made of any PNs issued by or on behalf of it to any person other than a person regulated by  an  appropriate  foreign  regulatory  authority.  Further,  SEBI  vide  its  circular  dated November 24, 2014 has aligned the applicable eligibility norms between FPI regime and subscription through PNs.

(c)    Regulation 22 of the SEBI (Foreign Portfolio Investors) Regulations 2014 obligates FPIs to fully disclose information concerning PNs, as and when and in such form as the SEBI Board may require. In terms of SEBI circulars, PN issuers are required to provide reports  on  a  monthly  basis  in  a  prescribed  format  containing  information  pertaining  to their PN activities in the preceding month by 10th of the subsequent month.

PNs  are  subscribed  by  regulated  entities  with  the  objective  to  take  exposure  in Indian securities even if they are not registered as FPIs. This avenue to take exposure in Indian  securities  brings  in  additional  foreign  exchange  to  the  country.  It  also  has  the effect  of  increasing  the  depth  of  the  Indian  capital  market  and  allows  for  a  more diversified source of capital investment from investors located in different countries. By allowing  more  investors  to  trade,  directly  or  indirectly,  in  the  Indian  market,  price discovery in Indian securities takes place on the exchanges in India and not in overseas exchanges where Indian securities may also be listed.

****

## Annex mentioned in part (a) to the Lok Sabha Unstarred Question No.3346

| Top 10 FPIs issuing PNs with Equity as underlying (as on March 31, 2015)   | Top 10 FPIs issuing PNs with Equity as underlying (as on March 31, 2015)   | Top 10 FPIs issuing PNs with Equity as underlying (as on March 31, 2015)   | Top 10 FPIs issuing PNs with Equity as underlying (as on March 31, 2015)   | Top 10 FPIs issuing PNs with Equity as underlying (as on March 31, 2015)   | Top 10 FPIs issuing PNs with Equity as underlying (as on March 31, 2015)   | Top 10 FPIs issuing PNs with Equity as underlying (as on March 31, 2015)   |
|----------------------------------------------------------------------------|----------------------------------------------------------------------------|----------------------------------------------------------------------------|----------------------------------------------------------------------------|----------------------------------------------------------------------------|----------------------------------------------------------------------------|----------------------------------------------------------------------------|
| S. No.                                                                     | Nameof the FPI                                                             | Country                                                                    | Notional value of Outstanding PNs on Equity (INR Cr.)                      | % share                                                                    | Notional value of Outstanding PNs on Equity, Debt &Derivatives (INR Cr.)   | % share                                                                    |
| 1                                                                          | COPTHALL MAURITIUS INVESTMENT LIMITED                                      | MAURITIUS                                                                  | 31,354                                                                     | 17%                                                                        | 31,354                                                                     | 12%                                                                        |
| 2                                                                          | MORGAN STANLEY ASIA (SINGAPORE) PTE.                                       | SINGAPORE                                                                  | 28,038                                                                     | 16%                                                                        | 33,092                                                                     | 12%                                                                        |
| 3                                                                          | GOLDMAN SACHS (SINGAPORE) PTE                                              | SINGAPORE                                                                  | 15,455                                                                     | 9%                                                                         | 25,883                                                                     | 10%                                                                        |
| 4                                                                          | MERRILL LYNCH CAPITAL MARKETS ESPANA S.A., S.V.                            | SPAIN                                                                      | 14,930                                                                     | 8%                                                                         | 16,915                                                                     | 6%                                                                         |
| 5                                                                          | CREDIT SUISSE (SINGAPORE) LIMITED                                          | SINGAPORE                                                                  | 12,860                                                                     | 7%                                                                         | 18,047                                                                     | 7%                                                                         |
| 6                                                                          | JPMORGAN CHASE BANK, NATIONAL ASSOCIATION                                  | USA                                                                        | 11,946                                                                     | 7%                                                                         | 11,946                                                                     | 4%                                                                         |
| 7                                                                          | DB INTERNATIONAL (ASIA) LIMITED                                            | SINGAPORE                                                                  | 11,379                                                                     | 6%                                                                         | 12,216                                                                     | 4%                                                                         |
| 8                                                                          | SWISS FINANCE CORPORATION (MAURITIUS) LIMITED                              | MAURITIUS                                                                  | 11,118                                                                     | 6%                                                                         | 13,111                                                                     | 5%                                                                         |
| 9                                                                          | HSBC BANK (MAURITIUS) LIMITED                                              | MAURITIUS                                                                  | 7,526                                                                      | 4%                                                                         | 13,488                                                                     | 5%                                                                         |
| 10                                                                         | CITIGROUP GLOBAL MARKETS MAURITIUS PRIVATE LIMITED                         | MAURITIUS                                                                  | 6,191                                                                      | 3%                                                                         | 12,191                                                                     | 4%                                                                         |
| Total (for top 10 PN issuing FPIs)                                         | Total (for top 10 PN issuing FPIs)                                         | Total (for top 10 PN issuing FPIs)                                         | 150,797                                                                    | 84%                                                                        | 188,244                                                                    | 69%                                                                        |
| Total (for all PN issuing FPIs)                                            | Total (for all PN issuing FPIs)                                            | Total (for all PN issuing FPIs)                                            | 179,598                                                                    |                                                                            | 272,078                                                                    |                                                                            |

| Top 10 FPIs issuing PNs with Equity as underlying (as on March 31, 2014)   | Top 10 FPIs issuing PNs with Equity as underlying (as on March 31, 2014)   | Top 10 FPIs issuing PNs with Equity as underlying (as on March 31, 2014)   | Top 10 FPIs issuing PNs with Equity as underlying (as on March 31, 2014)   | Top 10 FPIs issuing PNs with Equity as underlying (as on March 31, 2014)   | Top 10 FPIs issuing PNs with Equity as underlying (as on March 31, 2014)   | Top 10 FPIs issuing PNs with Equity as underlying (as on March 31, 2014)   |
|----------------------------------------------------------------------------|----------------------------------------------------------------------------|----------------------------------------------------------------------------|----------------------------------------------------------------------------|----------------------------------------------------------------------------|----------------------------------------------------------------------------|----------------------------------------------------------------------------|
| S. No.                                                                     | Nameof the FPI                                                             | Country                                                                    | Notional value of Outstanding PNs on Equity (INR Cr.)                      | % share                                                                    | Notional value of Outstanding PNs on Equity, Debt &Derivatives (INR Cr.)   | % share                                                                    |
| 1                                                                          | COPTHALL MAURITIUS INVESTMENT LIMITED                                      | MAURITIUS                                                                  | 23,059                                                                     | 18%                                                                        | 23,059                                                                     | 11%                                                                        |
| 2                                                                          | MORGAN STANLEY ASIA (SINGAPORE) PTE.                                       | SINGAPORE                                                                  | 18,117                                                                     | 14%                                                                        | 20,558                                                                     | 10%                                                                        |
| 3                                                                          | MERRILL LYNCH CAPITAL MARKETS ESPANA S.A., S.V.                            | SPAIN                                                                      | 11,769                                                                     | 9%                                                                         | 14,236                                                                     | 7%                                                                         |
| 4                                                                          | CREDIT SUISSE (SINGAPORE) LIMITED                                          | SINGAPORE                                                                  | 10,938                                                                     | 9%                                                                         | 18,437                                                                     | 9%                                                                         |
| 5                                                                          | JPMORGAN CHASE BANK, NATIONAL ASSOCIATION                                  | USA                                                                        | 7,592                                                                      | 6%                                                                         | 7,592                                                                      | 4%                                                                         |
| 6                                                                          | SWISS FINANCE CORPORATION (MAURITIUS) LIMITED                              | MAURITIUS                                                                  | 7,352                                                                      | 6%                                                                         | 9,800                                                                      | 5%                                                                         |
| 7                                                                          | DB INTERNATIONAL (ASIA)                                                    | SINGAPORE                                                                  | 6,620                                                                      | 5%                                                                         | 6,621                                                                      | 3%                                                                         |

|                                    | LIMITED                                            |                                    |         |     |         |     |
|------------------------------------|----------------------------------------------------|------------------------------------|---------|-----|---------|-----|
| 8                                  | HSBC BANK (MAURITIUS) LIMITED                      | MAURITIUS                          | 6,254   | 5%  | 7,115   | 3%  |
| 9                                  | CLSA (MAURITIUS) LIMITED                           | MAURITIUS                          | 5,524   | 4%  | 7,116   | 3%  |
| 10                                 | CITIGROUP GLOBAL MARKETS MAURITIUS PRIVATE LIMITED | MAURITIUS                          | 5,182   | 4%  | 12,898  | 6%  |
| Total (for top 10 PN issuing FPIs) | Total (for top 10 PN issuing FPIs)                 | Total (for top 10 PN issuing FPIs) | 102,406 | 82% | 127,433 | 61% |
| Total (for all PN issuing FPIs)    | Total (for all PN issuing FPIs)                    | Total (for all PN issuing FPIs)    | 125,649 |     | 207,639 |     |

| Top 10 FPIs issuing PNs with Equity as underlying (as on March 31, 2013)   | Top 10 FPIs issuing PNs with Equity as underlying (as on March 31, 2013)   | Top 10 FPIs issuing PNs with Equity as underlying (as on March 31, 2013)   | Top 10 FPIs issuing PNs with Equity as underlying (as on March 31, 2013)   | Top 10 FPIs issuing PNs with Equity as underlying (as on March 31, 2013)   | Top 10 FPIs issuing PNs with Equity as underlying (as on March 31, 2013)   | Top 10 FPIs issuing PNs with Equity as underlying (as on March 31, 2013)   |
|----------------------------------------------------------------------------|----------------------------------------------------------------------------|----------------------------------------------------------------------------|----------------------------------------------------------------------------|----------------------------------------------------------------------------|----------------------------------------------------------------------------|----------------------------------------------------------------------------|
| S. No.                                                                     | Nameof the FPI                                                             | Country                                                                    | Notional value of Outstanding PNs on Equity (INR Cr.)                      | % share                                                                    | Notional value of Outstanding PNs on Equity, Debt &Derivatives (INR Cr.)   | % share                                                                    |
| 1                                                                          | COPTHALL MAURITIUS INVESTMENT LIMITED                                      | MAURITIUS                                                                  | 14,359                                                                     | 16%                                                                        | 14,359                                                                     | 10%                                                                        |
| 2                                                                          | MERRILL LYNCH CAPITAL MARKETS ESPANA S.A., S.V.                            | SPAIN                                                                      | 10,662                                                                     | 12%                                                                        | 12,435                                                                     | 8%                                                                         |
| 3                                                                          | MORGAN STANLEY ASIA (SINGAPORE) PTE.                                       | SINGAPORE                                                                  | 8,269                                                                      | 9%                                                                         | 9,666                                                                      | 7%                                                                         |
| 4                                                                          | CREDIT SUISSE (SINGAPORE) LIMITED                                          | SINGAPORE                                                                  | 7,143                                                                      | 8%                                                                         | 10,479                                                                     | 7%                                                                         |
| 5                                                                          | SWISS FINANCE CORPORATION (MAURITIUS) LIMITED                              | MAURITIUS                                                                  | 6,186                                                                      | 7%                                                                         | 7,219                                                                      | 5%                                                                         |
| 6                                                                          | CLSA (MAURITIUS) Limited                                                   | MAURITIUS                                                                  | 5,685                                                                      | 6%                                                                         | 6,621                                                                      | 4%                                                                         |
| 7                                                                          | DEUTSCHE SECURITIES MAURITIUS LIMITED                                      | MAURITIUS                                                                  | 5,585                                                                      | 6%                                                                         | 7,944                                                                      | 5%                                                                         |
| 8                                                                          | DB INTERNATIONAL (ASIA) LIMITED                                            | SINGAPORE                                                                  | 5,564                                                                      | 6%                                                                         | 5,822                                                                      | 4%                                                                         |
| 9                                                                          | GOLDMAN SACHS INVESTMENTS (MAURITIUS) I LIMITED                            | MAURITIUS                                                                  | 5,077                                                                      | 6%                                                                         | 10,327                                                                     | 7%                                                                         |
| 10                                                                         | CITIGROUP GLOBAL MARKETS MAURITIUS PRIVATE LIMITED                         | MAURITIUS                                                                  | 4,903                                                                      | 5%                                                                         | 17,648                                                                     | 12%                                                                        |
| Total (for top 10 PN issuing FPIs)                                         | Total (for top 10 PN issuing FPIs)                                         | Total (for top 10 PN issuing FPIs)                                         | 73,434                                                                     | 82%                                                                        | 102,521                                                                    | 69%                                                                        |
| Total (for all PN issuing FPIs)                                            | Total (for all PN issuing FPIs)                                            | Total (for all PN issuing FPIs)                                            | 89,305                                                                     |                                                                            | 147,905                                                                    |                                                                            |