Participatory notes (P-notes)

Participatory Notes or P-Notes (PNs) are financial instruments issued by a registered foreign institutional investor (FII) to an overseas investor who wishes to invest in Indian stock markets without registering themselves with the market regulator, the Securities and Exchange Board of India (SEBI).
P-Notes are Offshore Derivative Investments (ODIs) with equity shares or debt securities as underlying assets.
They provide liquidity to the investors as they can transfer the ownership by endorsement and delivery.
While the FIIs have to report all such investments each quarter to SEBI, they need not disclose the identity of the actual investors.
The primary reason why P-Notes are worrying is because of the anonymous nature of the instrument as these investors could be beyond the reach of Indian regulators.