The government and securities market regulator Sebi have agreed to allow foreign individuals, corporates and other investors such as hedge funds to register directly as foreign institutional investors — a move designed to increase transparency and reduce transaction costs for these investors. The proposal, which has already been discussed at the regulator’s board meetings, is set to be formalised at a meeting next month, said a senior official engaged in the discussions. By facilitating the entry into local markets without the need to lean on well-entrenched large foreign broking firms registered with Sebi, policy makers hope to see a waning of participatory notes (P Notes). P Notes are derivative instruments issued by FIIs here to overseas investors who may not be eligible to invest directly. They offer underlying Indian stocks, with the holder of the instrument entitled to benefits such as dividends and capital appreciation. A substantial portion of portfolio inflows into the country have been through the P-Note route. While some overseas investors prefer to use this route to hide their identities, many have taken recourse to this due to hurdles in obtaining registration as FIIs here. To invest in Indian stocks, they have to go in for a P-Note structure — for which the transaction costs are higher.   more »