First, what the heck are ODIs: If ODI is not one-day international, what’s it?

ODI or ‘offshore derivative instrument’ includes PNs, but there are more. Such as, equity-linked notes, capped return note, participating return note, investment note and similar instruments issued by FIIs (foreign institutional investors) and their sub-accounts outside India against their underlying investments in listed or proposed to be listed securities (shares, debt or derivative) in India.

. . . entities which otherwise are not eligible to invest, e.g., hedge funds, use the ODI route to invest in the Indian market.

“The value of outstanding ODIs with underlying as derivatives currently stands at Rs 1,17,071 crore, which is approximately 30 per cent of total PNs outstanding. The notional value of outstanding PNs, excluding derivatives as underlying as a percentage of AUC is 34.5 per cent at the end of August 2007.”

Hmm. Not chump change. And quite important in the current context - where hedge funds are liquidating everything in sight to meet redemptions and margin calls.

So, here is what the SEBI decided to do today: SEBI revises P-note norms; lifts 40% cap in ODIs

. . . the restrictions on offshore derivative instruments in will be removed. The 40 per cent cap on ODIs in both cash as well as derivative contracts will be lifted.

I would be surprised if this juices up the market in the near future; but seems good for the longer-term.

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