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Consider the following statements with respect to Participatory Notes (PNs):
1. These are offshore derivative instruments with only Indian private shares as underlying assets.
2. The P-Notes holder does not enjoy any voting rights in relation to security referenced by the P-Notes.
Which of the statements given above is/are correct?
1. These are offshore derivative instruments with only Indian private shares as underlying assets.
2. The P-Notes holder does not enjoy any voting rights in relation to security referenced by the P-Notes.
Which of the statements given above is/are correct?
- a)1 only
- b)2 only
- c)Both 1 and 2
- d)Neither 1 nor 2
Correct answer is option 'B'. Can you explain this answer?
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Verified Answer
Consider the following statements with respect to Participatory Notes ...
- Statement 1 is not correct: A Participatory Note (PN or P-Note) in the Indian context, in essence, is a derivative instrument issued in foreign jurisdictions, by a SEBI registered Foreign Institutional Investor (FII) or its sub-accounts or one of its associates, against underlying Indian securities. The underlying Indian security instrument may be equity, debt, derivatives or may even be an index. Further, a basket of securities from different jurisdictions can also be constructed in which a portion of the underlying securities is Indian securities or indices.
- PNs are market instruments that are created and traded overseas. Hence, Indian regulators cannot ban the issue of PNs. However, they can only be regulated, and they are being regulated by the securities market
- regulator in India, Securities, and Exchange Board of India (SEBI). When a PN is traded on an overseas exchange, the regulator in that jurisdiction would be the authority to regulate that trade.
- Statement 2 is correct: The investor in PN does not own the underlying Indian security, which is held by the FII who issues the PN. Thus the investors in PNs derive the economic benefits of investing in the security without actually holding it. They benefit from fluctuations in the price of the underlying security since the value of the PN is linked with the value of the underlying Indian security. The PN holder also does not enjoy any voting rights in relation to security/shares referenced by the PN.
Most Upvoted Answer
Consider the following statements with respect to Participatory Notes ...
PNs or Participatory Notes are offshore derivative instruments that are issued by registered foreign institutional investors to overseas investors. These notes derive their value from underlying Indian securities such as shares, debt securities, etc. The main purpose of PNs is to enable foreign investors who are not registered with SEBI to invest in the Indian stock market. However, PNs have been controversial due to their potential for misuse in money laundering and other illegal activities.
Statement 1: Incorrect
Participatory Notes are offshore derivative instruments that can have various underlying assets such as shares, debt securities, derivatives, etc. These assets can be from any country, not just India. Therefore, statement 1 is incorrect.
Statement 2: Correct
PN holders do not have any voting rights in relation to the underlying securities. This means that they cannot participate in any shareholder meetings, cannot vote on company resolutions, etc. They only have the right to receive the economic benefits of the underlying securities. Therefore, statement 2 is correct.
In conclusion, only statement 2 is correct. PNs can have underlying assets from any country and PN holders do not have any voting rights.
Statement 1: Incorrect
Participatory Notes are offshore derivative instruments that can have various underlying assets such as shares, debt securities, derivatives, etc. These assets can be from any country, not just India. Therefore, statement 1 is incorrect.
Statement 2: Correct
PN holders do not have any voting rights in relation to the underlying securities. This means that they cannot participate in any shareholder meetings, cannot vote on company resolutions, etc. They only have the right to receive the economic benefits of the underlying securities. Therefore, statement 2 is correct.
In conclusion, only statement 2 is correct. PNs can have underlying assets from any country and PN holders do not have any voting rights.
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Consider the following statements with respect to Participatory Notes (PNs):1. These are offshore derivative instruments with only Indian private shares as underlying assets.2. The P-Notes holder does not enjoy any voting rights in relation to security referenced by the P-Notes.Which of the statements given above is/are correct?a)1 onlyb)2 onlyc)Both 1 and 2d)Neither 1 nor 2Correct answer is option 'B'. Can you explain this answer?
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