Can Archegos like scenario happen in India?

I read in an article which mentioned that some companies are now allowed 100% investments from FPIs. Hypothetically if a person/fund is bullish about one of those companies and approaches multiple FPIs to issue P-Notes against that company’s share (as P-Notes seem to allow for instruments like total return swaps which were used by Archegos). In case that particular company’s share price goes down drastically, will a situation similar to Archegos arise? As P-Notes investment has been on a rise recently (SEBI Report), are there higher risks of Archegos-type situation occurring?

Also, I had come across an article that mentioned an example scenario -

Say a fund house based out of Singapore wants to bet on Rs 100 crore worth of Tata Steel shares for six months. It would get in touch with an investment bank in India, put up Rs 15 crore and borrow Rs 85 crore from the investment bank. This Rs 100 crore would then be used to buy Tata Steel shares. The fund house would pay the investment bank a fixed fee as well as interest on the borrowed money, every month. If the value of the Tata Steel shares were to rise to Rs 110 crore at the end of the month, the investment bank would have to pay Rs 10 crore to the fund house. The fund house’s profit will be the capital gain minus the fixed fee and interest charges.

But if the value of Tata Steel shares is lower at the end of the month, the investment bank will ask the fund house to either reduce its position or put up more capital. This is known as a margin call. Throughout the tenure of the swap contract, the shares sit in the books of the investment bank.

Would such a transaction happen via the P-Notes route?


P-Notes are allowed only for hedging purposes. Check this article.

In 2017, the regulator had banned Pnote subscribers from taking any unhedged positions in the Indian derivative markets as part of its attempts to discourage use of the instrument. The government and Sebi have frowned upon the popularity of P-notes in the past as they are considered opaque because of constraints in identifying the end investor.

Until then, there were no restrictions on P-note subscribers in terms of trading or dealing in the markets. Hence, foreign brokers were issuing P-notes and underlying securities were held in their proprietary books.


Thanks for sharing that article. As the P-Notes route can’t be used for such a transaction, how will such a leveraged transaction be structured?

After searching around, I came across an article that mentioned that the regulator had made some changes to relax the 2017 regulations -

Sebi announced the move last week in a circular titled “Easing of access norms for investment by foreign portfolio investors”.

Experts say the new measure, which resembles the participatory note (p-note) framework, could be a game changer.

Also, this route will provide more flexibility to investors compared to p-notes, as they will be able to take unhedged exposure to Indian derivatives market.

Sebi’s latest move is a departure from the regulator’s efforts in the past few years to encourage direct participation.

All big-ticket p-note issuing entities are owned by banks such as Citi, JPMorgan, BNP Paribas, and Credit Suisse. These banks can now direct their clients to invest through their wealth management arms rather than taking the p-note route.

Also, SEBI (Foreign Portfolio Investors) Regulations, 2019 seem to have further relaxed the conditions that these global investment banks needed to meet for investing money on behalf of their clients (likely allowing for such leveraged trades?) -

In a recent Economics Times article, it was mentioned that holders of offshore derivative instruments (ODIs) were asked to bring in additional security (in the form of cash or collateral) after the Archegos incident -


Mainly trying to find out if (theoretically speaking) such a highly leveraged trade could be possible in Indian markets? I understand that chances of such things happenings are less now because risk management in most of these global investment banks would be alert after the Archegos blowup.