Mumbai, Oct. 6: The capital market regulator today lifted all the restrictions that were clamped on participatory notes (P-notes) a year ago.

The P-note is a major offshore derivative instrument (ODI). These instruments are issued to overseas investors against ownership of underlying shares in an Indian company.

Last year when the stock markets turned bullish, it was estimated that P-notes accounted for almost 40 per cent of the total cash pumped in by foreign institutional investors (FIIs).

In October 2007, Sebi had clamped down on P-notes. It had ruled that all existing positions would have to be wound up over a period of 18 months.

Moreover, FIIs were not permitted to issue P-notes in excess of 40 per cent of their assets under custody. The FIIs that had issued P-notes amounting to less than the 40 per cent ceiling were permitted to issue them at an incremental rate of 5 per cent of the assets under custody.

In an attempt to buoy the sagging markets, the regulator decided to remove all of these restrictions.

Sebi chairman C. B. Bhave said while the decision had been taken in a “particular context”, the market regulator has decided to undertake a comprehensive review of the framework governing the participation of FIIs.

Bhave refused to admit that the measures were being taken to boost sentiment on the stock markets.

Stock market experts reacted positively to the Sebi decision and added that it could spark a rally tomorrow.

Sebi has also decided to promote dedicated exchanges. for small and medium enterprises.

It has also raised the investment cap on six categories of shareholders in stock exchanges to 15 per cent from 5 per cent. The six categories of investors include public financial institutions, stock exchanges, depositories, clearing corporations, banks and insurance companies.