Sebi's proposal cause a catastrophy for markets

Sebi’s proposals to change some of the rules how PNs could be issued by FIIs have stopped issuance of new P notes. The result has been nearly $1.17 billion worth of record FII outflows from Indian Stock Market on Wednesday. While about Rs.2000 crore went out of the cash market, Rs 4600 crore was withdrawn from derivative segment. JP Morgan said in a note that the potential near term outflow was uncertain. One of the main concerns for the FIIs is Sebi’s proposal to put limits on P notes with notional value less than 40% of their total Assets Under Custody (AUC), will be allowed to issue such instruments at the incremental rate of 5% of their AUC in Indian markets.Now most of the FIIs who issue P notes are above this 40% limit.So FIIs are not issuing any more P notes. Given P notes are high commissioned business for FIIs they are losing money as one of their most profitable product has just vanished. Lehman brothers in a note said that if Sebi proposals are executed as such in present form they are going to have a negative impact on markets for near term. But Finance Minister, recently said the measure was to cap the dollar inflow to the country and check the appreciating rupee.