The new financial architects

Lawyers are playing a vital role in the introduction of securitization, structured finance and other high-end financial techniques into India. Ben Frumin talks to some of the deal-makers and explores how legal and regulatory issues are shaping India’s new investment environment

For several anxious days in October, turbid Indian financial markets roiled, breaking records both positive and negative. In just one day, 17 October, the Sensex logged its largest intra-day decrease (1,744 points), only to record its second-biggest rebound only hours later, after a forced closure of the market.

To many analysts, one of the biggest causes of this market turbulence was discussion and a later decision regarding curbs to a type of derivative known as Participatory Notes, or P-notes. These allow non-registered foreign investors, often hedge funds, to invest in Indian stocks and securities. The Securities & Exchange Board of India (SEBI) decided that foreign funds must do away with P-notes within 18 months.

“The quality of money pumped into India’s market through P-notes is highly dubious,” says Rohit Sharma, a lawyer working in the banking and project finance department of Dua Associates in Mumbai. Among other concerns, regulators fear terrorists, the underworld, promoters, market operators or politicians could use this anonymous investment vehicle for illegitimate purposes.