A review of the securities lending and borrowing system, and the status on the launch of currency futures is also listed for discussion by the SEBI board at its meeting slated on August 13.

In October 2007, SEBI had changed some of the rules relating to the issuance of P-Notes, or PNs, as they are known in the market. Following those changes, foreign portfolio investors were barred from issuing PNs with Indian equity derivatives as the underlying.

Where the underlying is equity shares, this class of investors cannot issue PNs aggregating more than 40% of their total assets under custody. Participatory notes are like a derivative instrument issued against an underlying security, which in this case is shares of Indian firms.

These are issued by foreign portfolio investors registered here to overseas investors or clients who may not be eligible to invest in the markets here or may be reluctant to disclose their identity. The holder of PNs will be able to gain from the capital appreciation of the underlying shares.

Officials close to the development said the regulator would now carry out a review to ascertain whether any further changes were called for. Considering that there has been a sustained outflow due to overseas investors selling Indian stocks over the last few months, sources said changes if any, were likely to be flexible rather than restrictive. Overseas portfolio investors have sold stocks worth over $6.5 billion since the start of 2008.