With two more days to go, markets hope for more from SEBI clarity on hedge funds and cut off date for value of P-Note holding. SEBI Chairman also clarified that corporate sub accounts also have the benefit of conversion. But only propreitary accounts will get the benefit of issuing P-Notes during transition.

There was some relief for those who are already holding P-Notes well over 40% of their assets under custody. They can continue to retain that advantage, but they cannot bring fresh notes. The SEBI Chairman also pointed out that the regulator has been liberal in giving the FIIs enough time to unwind P-Notes based on derivatives.

SEBI informed that the responses are adequate to take the process forward. The regulator has been inviting FIIs to come via front door, but response is lukewarm. To change the scenario of FIIs investing in India in some other name is the motto of SEBI.

SEBI said that they have cleared 16 FII applications and there are some cases that are pending. The categories seeking registration are not cleared. But the board has cleared new categories which will be put it out shortly on the website. The board will not to be held accountable if application is not complete. The unregistered PNs were told by the SEBI to wind up 3.5 years ago. It informed that the sub account which are only for P-Note work will not be allowed. But proprietary SUC accounts will be allowed to register. Single group can register multiple entities in India.

SEBI further said that the regulator will look at AUC over a period of time. The entities who want to get registered with SEBI seeking time, have to notify SEBI. There is a sense of urgency and hence, SEBI want to see an orderly closure. SEBI Chief said that there is no need to wait for Oct 25 to apply for FII registration.

SEBI has already received large number of responses from both India and abroad. And the regulator seeks to expedite the process of registration. Earlier, SEBI have never had too many FII applications pending. The FII applications received before Oct 17 are cleared now.

SEBI further said that sub-accounts for FIIs will not be carved out but proprietary sub-accounts will be allowed to register. SEBI feels that it is necessary to differentiate between corporate and FII sub accounts and will mull to carry on positions from P-Note status to FII. Sub accounts, that want to register, must intimate within next 24 hours. Time limit for the registration is of 18 months, which deems as 'liberal', said SEBI. Further, SEBI is not asking the entities with over 40% exposure to cut down their levels.

SEBI also said that multiple registrations from single FII group is likely. PNs will stay till all entities register directly. SEBI said that P-Note exercise is not aimed at curbing the capital inflows. There is no upper limit on sub accounts registering as FII and there are 3000+ registered entities exist already. An expert panel is working on PNs based on derivatives. FII Registration fee is of US ,000 and Sub Account fee is of US $ 2000. And the regulator will be flexible with certain criteria including 1 year track record if need be.

Citigroup, Goldman Sachs, ML, Kotak are among the FIIs who attended the meeting. SEBI has received large response from both India and abroad and these responses are adequate to take the process forward. The scenario of FIIs investing in India in some other name will change. Citibank has expressed desire to register as FII and has been cleared. The regulator has suggested that FIIs should not renew or issue P-Notes with derivatives as underlying instruments.

It further said that P-Notes issued against derivatives need to be wind up in next 18 months. Incremental rate of 5% for issue of P-Notes for FIIs with <40%>40% on redemption/cancellation. P-Notes based on derivatives account for 30% of total P-Notes. Currently, there are 34 FII/Sub-accounts issue P-Notes vs 14 in March '04. On this issue, Finance Minister P Chidambaram said that the attempt is to control leveraging flexibility of P-Notes. The value of P-Notes over last 3 years is of Rs 3.5 lakh crore Vs Rs 31,875 crore.