What are P-notes

Definition :
P-notes are derivative instruments issued by registered foreign portfolio investors to overseas investors to enable them to trade in Indian stocks without having to register with the regulator. 
At present, P-note subscribers are not required to take prior permission of the P-note issuer for transferring it to another investor offshore.
This would enable the regulator to know the complete transfer trail of P-notes on a monthly basis. 
Since Sebi cannot exercise direct control over the downstream purchasers and there is where this route has been mis-utilised the most, the issuer FPIs have been made more accountable in the entire issuance process. Such steps may cause some knee-jerk reaction in the markets but are likely to cleanse the system in the long run. 

The proposed changes come in the wake of the concerns raised by the Supreme Court-appointed Special Investigation Team (SIT) on black money on the identification of beneficial owners and on the transferability of P-notes.
The regulator has also mandated that P-note issuers would have to follow the Indian know-your client (KYC) and anti- money laundering norms instead of the norms prevalent in the jurisdiction of the end beneficial owner or of the P-note issuer, an attempt to bring uniformity in KYC norms.
P-note issuers would have to identify the beneficial owners in the subscriber entities, who hold in excess of the threshold that is 25 % in case of a company and 15 % in case of partnership firms and trusts. 

The P-note route, despite having undergone a number of regulatory changes in the past decade, still did not have sufficient checks and balances on issuer FPIs, particularly with respect to downstream transfers of P-notes. 

P-note issuers would have to file suspicious transaction reports with the Indian Financial Intelligence Unit on the notes issued by them. 

Besides, the issuers would also have to carry out reconfirmation of the P-note position on a semi-annual basis and they would also have to carry out know-your client review at the time of on-boarding every year.