P-Note abuse: Promoter-banker-FII nexus under SEBI scanner

Funds operating from Mauritius, Singapore and Hong Kong, as well as role of some major financial institutions from the US, Europe and within India are being examined by SEBI

Market regulator Securities and Exchange Board of India (SEBI) is probing a possible nexus between promoters of listed companies, investment bankers and foreign funds through misuse of the controversial ’participatory note’ (P-Note) route. SEBI suspects illicit insider trading and market manipulation for such activities.


SEBI probe follows several instances of listed company shares being possibly manipulated through concerted efforts of their promoters and market intermediaries such as investment banks and foreign funds during share sales.


Those under the scanner include funds operating from the financial centres of Mauritius, Singapore and Hong Kong, while the role of some major financial institutions from the US, Europe and within India are also being examined, a senior official said.


SEBI is currently in the process of seeking details from these banks and the listed companies concerned and some of these entities have promised full cooperation in the matter.


The probe so far has suggested that foreign funds, including well-known hedge funds that recently expanded their exposure to Indian markets, could have abused a lacuna in the disclosure-based regulatory regime to make illicit gains.


In many cases, trades were done through offshore derivative instruments, commonly known as P-Notes.


SEBI has tightened P-Note norms after coming across instances of misuse and has made it mandatory for registered foreign institutional investors (FIIs) issuing them to collect details of the real beneficiary owners of funds to be invested through this route.


P-Notes are instruments issued by registered FIIs to overseas investors such as high networth individuals and hedge funds who wish to invest in the Indian markets without directly registering themselves with SEBI. Earlier, it used to be difficult to establish the real identity of the P-Note holders on whose behalf FIIs traded in India.


While FIIs are obliged to identify the real beneficiary owners of funds used by P-Note holders, its disclosure-based regime results in a time lag and SEBI gets to the end of the money trail only after conducting an enquiry.


There are no plans to revise P-Note rules as the current framework was prepared to improve ease of investing by foreign entities. SEBI is confident that its strong surveillance mechanism and cooperation by registered market intermediaries would help it effectively crack down on the manipulators.


Investments through P-Notes surged to Rs2.12 lakh crore as on 31st May, the highest level in the past six years.


SEBI is also counting on help from foreign peers in its widened probe into these suspected cases of manipulation.


In one ongoing probe, SEBI has barred a hedge fund managed by Hong Kong-based Factorial Capital Management from the Indian markets through an interim order on ‘insider trading’ charges in L&T Finance shares.


UP Stock Exchange to shut operations

The UP Stock Exchange, which was set up in 1982, has not seen trading on its platform since 2001 and does not meet the market regulator SEBI’s requirements

The board and shareholders of UP Stock Exchange have approved shutting down its operations as a bourse and the same is being conveyed to market regulator Securities and Exchange Board of India (SEBI).


According to KD Gupta, chairman of UP Stock Exchange the board of members and shareholders of the bourse on Monday decided to inform SEBI that it will stop operating as a stock exchange.


Gupta said a letter in this regard is being sent to the SEBI on Tuesday. The bourse would stop functioning as a stock exchange once directions are received from the market regulator, he added.


According to SEBI regulations, any bourse not having a minimum turnover of Rs1,000 crore and not having a net worth of Rs100 crore runs the risk of being de-recognised.


The exchange, which was set up in 1982, has not seen trading on its platform since 2001 and does not meet the market regulator’s requirements.


UP Stock Exchange’s Workers Union General Secretary Satya Narayan Tripathi, however, has raised concern that the 55 workers employed with the Exchange would lose their jobs if the bourse shuts operations. Facing an uncertain future, the workers and their families are holding protests.


“We have written to the government to save the stock exchange...but we have not received any satisfactory response,” Tripathi said.


Building a Better India -Part14: Rural Development

Real and inclusive growth cannot take place until India's 6.25 lakh and more villages and hamlets are developed and well governed.

One block development officer (BDO) is absolutely inadequate to administer and develop around 35 to 60 villages normally under his jurisdiction. For instance South 24 Parganas District in West Bengal has a population of 80 lacs, has 2293 'Mouzas' besides a big portion of south Calcutta, but has only 29 block development officers, a ratio of 79:1

Changes in the district administrative structure:

Since British period, the administrative head of a district, an IAS officer, is called differently as district magistrate or district collector (DM/DC), assisted by sub-divisional magistrate or officer (SDM/SDO) who are followed by Block Development Officers (BDO) and sub-Registrars/ Tehsildars. The DM is also the head of the Zilla Parishad- a body of elected representatives under 3-tier panchayat systems.

The district head should be same and commonly designated as chief district administrator (CDA) who should be assisted by several officers in the field of agriculture, education, animal husbandry, health, revenue, irrigation, transport and general development all drawn from the state civil service.

For administrative convenience, the districts are sub divided into sub-divisions each headed by a SDM/SDO, again IAS officers, and work under and report to the DM/DC.

The head of police is an IPS officer, called differently as SP/DCP and coordinates with the DM in maintaining law and order. He should be called as the Chief district police officer (CDPO) to be assisted by an additional CDPO to head the sub-districts and they can be further supported by assistant CDPOs as per necessity and requirement, to supervise the various police stations under their jurisdiction. The number of police stations should be increased so that there is at least one police station for 5 to 7 villages.

There are 640 districts in the country, but all are of unequal size and not in proportion of population. The larger districts, therefore, should be divided into smaller districts for better, effective and convenient administration under the command of a single IAS officer. At present some districts are so large both in size and population, multiple IAS officers are required to be appointed as additional district magistrates to assist the district magistrate.

 The area of jurisdiction of existing sub-divisions/sub-districts can be further reduced and more number of SDOs appointed so that the post of BDO is eliminated to enable proposed village development officers to directly coordinate with and report to their respective SDO who in return will report to the Chief district Administrator.

For effective development and administration of villages; an additional post of village development officer (VDO) should be created under central civil service with a jurisdiction of a cluster of not more than 5 to7 villages, with his office located in the centre of this cluster; to provide govt related services to the villagers at their doorstep besides other important functions as under:

1. Keeping a record of all details like name, number of children, education level, nature and quantum of  land holding, income level,  bank a/c details,  voter card number, driving licence number,  details of tractors and vehicles owned and possessed, PAN number, Aadhar Card Number etc of each and every person and household under his jurisdiction.

2. Keeping a record of families eligible for subsidies and to ensure their fair and proper distribution and disbursement.

3. Keeping a record of people eligible for employment under NREGA schemes, ensure their registration, attendance on duty and monitoring and recording of work done by them and disbursement of their wages.

4. Keeping record of births, deaths and marriages and issue of certificates for the same, and informing the same to election commission office for updating their records.
5. Keeping records of cultivated land and crops sown season-wise in the villages under him/her and to pass this information to state agriculture department.

6. Issue of trade and commerce licences, and collection of fees for the same.

7. To sign as a confirming partym the consent/NOC granted by the gram sabha for establishment of factories on village land and to issue land use conversion certificates.

8. To ensure supervision and speedy implementation of development schemes by coordinating concerned agencies and panchayats and ensure grants are utilized properly.

9. To educate villagers on latest improvements in agriculture, animal husbandry and poultry farming technology; new kinds of high yielding seeds and fertilizers.

10. To make preparations and render all help and assistance to election commission for holding election for panchayats, state and central elections.  

11. To check the attendance of teachers in government schools by surprise visits.

Issuing new land ownership certificates:

This gigantic task once successfully completed over a period of 3/4 years will once for all straighten the land records with clear ownership and title, and will remove all doubts and disputes on land and property. This will considerably reduce future litigations and also remove the necessity of drafting lengthy conveyance deeds with full past ownership history of the properties each time there is a change of hand.

The major and top priority works in villages are provision of toilet in each home, provision of water  by boring a deep tube well, lifting the water to an overhead RCC Reservoir and distributing the same through a network of pipelines at different points, making the pucca roads, cleaning village ponds or digging new one on the panchayat land, street lights, provision of one govt appointed and paid medical practitioner for every 5 villages, and small library preferably in the local govt schools.

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