Participatory notes under scrutiny as they reach peak

The demise of participatory notes and other access derivatives has long been predicted amid regulatory clampdowns and permission increasingly being given to investors to access markets directly. Funding issues have also caused headaches for swaps issuers and there are concerns Basel III charges may hurt some products. But market activity remains robust. Harry Thompson reports

Participatory notes, more commonly know as p-notes, and other access derivatives instruments, such as swaps, have come in for a fair amount of scrutiny by regulators during the past five years. These over-the-counter instruments are highly lucrative for international dealers with onshore licences in restricted markets, which issue delta one notes giving investors exposure to capital gains and dividends. Swaps are also a popular way to access onshore markets, particularly with hedge funds, where