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Informist, Friday, Aug 16, 2024

MUMBAI – The Securities and Exchange Board of India, in a consultation paper floated today, has proposed introducing a liquidity window facility for those who want to invest in debt securities by using put options exercisable on pre-specified dates or intervals.

The market regulator said lower levels of secondary market transactions in corporate bonds had resulted in the market being perceived as illiquid due to which the need for such a mechanism had emerged.

SEBI has proposed that issuers determine and specify the aggregate limit of the liquidity window facility and per liquidity window sub-limit. "The issuer shall determine and specify the percentage of the issue size of the eligible securities constituting the aggregate limit for the exercise of put options by the investors through Liquidity Window facility over the tenor of the debt securities, which shall not be less than [10] or [15]% of final Issue size of such debt securities," the regulator said in the paper.

They may also specify the sub-limit of put options that can be exercised in each liquidity window over the tenor of liquidity window facility. "In case the put options exercised by eligible investors exceeds the per window sub-limit, the acceptance of put options from eligible investors shall be on proportionate basis," it added.

The issuers can designate any of the stock exchanges for the purpose of the liquidity window, SEBI said. The regulator has also proposed that the liquidity window be kept open for three working days on a monthly or quarterly basis at the discretion of the issuer.

Issuers will also have to specify the eligibility of investors who can avail the liquidity window facility. They need to specify whether the facility would be available to all investors in the debt securities or only to retail investors in the debt securities. "Eligible investors desirous of availing the liquidity window will be required to hold the debt securities in dematerialised form," it said.

The liquidity window facility can be provided only for prospective issuances of debt securities through a public issue process or on a private placement basis. It also said that the issuer will have to provide the liquidity window facility only after the expiry of one year from the date of the issuance.

In terms of valuation, SEBI has proposed that the debt securities that have been tendered will be valued on the day of the closure of the liquidity window. It also said that the issuer has to ensure that the amounts payable to the investor will not be at a discount of more than 100 basis points.

Lastly, the paper suggested ways in which the issuers could deal with the debt securities after utilising the put option. It suggested either selling the securities on the debt segment of stock exchanges, online bond platform, or selling them directly on the request for quote platform. "The amount realised by the issuer on sale of the debt securities shall be added to the aggregate limit of the Liquidity Window facility and hence will replenish any past usage of the limit," it said. 

The regulator has sought comments on this consultation paper by Sep 6.  End

Reported by Kshipra Petkar

Edited by Ashish Shirke

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