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Informist, Wednesday, Oct. 16, 2024

 

NEW DELHI – The Securities and Exchange Board of India Wednesday introduced a liquidity window framework to boost activity levels in the corporate bond market. The liquidity window, which will be provided by an issuer at its discretion at the time of issuance of the corporate bond, will only open one year from the date of the issuance and be in the form of put options that can be exercised by investors on pre-specified dates or intervals.

 

The liquidity window facility cannot be offered for corporate bonds that are being re-issued, SEBI said.

 

"One of the factors that drives investor participation in a market is the availability of liquidity. Low levels of secondary market transactions in corporate bonds (including due to a large number of institutional investors holding such bonds to maturity) has resulted in the corporate bond market being perceived as illiquid," the capital markets regulator said in a circular. In light of this issue, SEBI said a liquidity window facility will be of "immense utility to investors, especially retail investors, and can serve to enhance their investment in such debt securities".

 

As per SEBI's circular, each issuer must have prior approval from its board for the liquidity window facility before the bond issuance. Further, the issuing entity must specify who can use the facility. Those who wish to use the liquidity window, which will be kept open for three working days, must also hold the debt securities in dematerialised form.

 

"The liquidity window may be operated on a monthly/quarterly basis at the discretion of the Issuer. The schedule of liquidity window/s shall be disclosed upfront in the offer document," SEBI added.

 

Finally, the regulator said the debt securities must be valued on 'T-1' day, where T is the first day of the liquidity window, and that issuers should ensure investors are not paid at a discount of more than 100 basis points on the valuation arrived plus the accrued interest. "Such amounts shall be payable within one working day from the closure of the liquidity window," SEBI said, adding that settlement shall be on 'T+4' day.  End

 

Reported by Siddharth Upasani

Edited by Rajeev Pai

 

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