In its third report on steps required to check the black money menace, the Special Investigation Team (SIT) said it is not enough for SEBI to ban individuals and companies from stock markets and the regulator needs to initiate prosecution proceedings and take all necessary 'preventive and punitive' actions.
The SIT also questioned the current practice of P-Notes being transferable in nature and said, "SEBI needs to examine if this provision of allowing transferring of P-Notes is in any way beneficial for easing foreign investment".
P-Notes or Participatory Notes are typically Offshore Derivative Instruments issued abroad by Foreign Institutional Investors (FIIs) or their associates against the underlying Indian securities.
While norms have been tightened considerably for P-Notes over the years, they remain popular among foreign investors since they allow them to invest in Indian markets without undergoing the significant cost and time implications of directly investing in the India.
To prevent misuse of exemption on Long Term Capital Gains (LTCG) tax for money laundering, the panel has suggested a slew of measures such as having an 'effective monitoring mechanism' by SEBI to study such unusual rise of stock prices.
Noting that the watchdog has a strong IT infrastructure that can generate red flags about such activities, SIT said those 'red flags could be built upon trading volumes, entities which contribute to trading volume, financial background of firms through their annual returns and any other indicators'.   



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