18 Oct, 2007 The Economic Times
Q: What are participatory notes?
Q: Why investors use PNs?
A: While one reason for using PNs is to keep the investor’s name anonymous, some investors have used the instrument to save on transaction costs, record keeping overheads and regulatory compliance overseas. A report said investors often find it expensive to establish broker and custodian bank relationships, deal in foreign exchange, pay taxes and/or filing, obtain or maintain an investment identity or regulatory approval in certain markets, where their total exposure is not going to be very large.
Q: What is the problem with the instrument?
A: RBI, which had sought a ban on PNs, believes that it is tough to establish the beneficial ownership or the identity of ultimate investors. It fears that FIIs, which have to comply with the know-your customer norms, know the identity of the investor to whom the note was issued. But it is possible for the investor to sell the PN to another player resulting in multi-layering. Tax officials fear PNs are becoming a favourite with many Indian money launderers who use it to first ship funds out of the country, through hawala, and then get it back using PNs.
A: Over the years, the use of PNs has increased from 17 FIIs issuing it in 2005 to over two dozen funds now. Merrill Lynch, Morgan Stanley, Credit
http://economictimes.indiatimes.com/Analysis/What_are_P-Notes/articleshow/2468917.cms
With Thanks from The Economic Times
deepakmiglani@hotmail.com
No comments:
Post a Comment