What are P-Notes? 

• P-Notes or Participatory Notes are Instruments issued by a registered foreign institutional investor to an overseas investor who wishes to invest in Indian stock markets without registering themselves with the market regulator, the Securities and Exchange Board of India (SEBI).

What are the government & regulatory concerns? 

• The primary reason why P-Notes are worrying is because of the anonymous nature of the instrument as these investors could be beyond the reach of Indian regulators.
• Further, there is a view that it is being used in money laundering with wealthy Indians, like the promoters of companies, using it to bring back unaccounted funds and to manipulate their stock prices.

What has SEBI done to regulate P-Notes? 

• SEBI has taken a number of steps to tighten rules on P-Notes.
• From January 2011, FIIs have had to follow KYC norms and submit details of transactions. 
• In 2014, new rules on FIIs made it mandatory for those issuing P-Notes to submit a monthly report disclosing their portfolios.
• Also, Sebi has mandated that in addition to KYC, the anti-money laundering rules (AML) will also be applicable to P-Note holders.
• Sebi also issued norms on transferability of P-Notes between two foreign investors and increased the frequency of reporting by P-Note issuers.

Why in News?

• Investments through P-notes in the domestic capital market surged to Rs 62,138 crore till June-end, making it the third consecutive monthly rise.