Introduction of Liquidity Window Facility for Investors in Debt Securities through Stock Exchange Mechanism
Overview:
The SEBI circular issued on October16th As the corporate bond market plays a vital role in providing funding to issuers while also offering investment opportunities for investors. To enhance participation and transparency in this market, the Securities and Exchange Board of India (SEBI) has implemented various initiatives. These include the introduction of platforms for electronic bond trading, mechanisms for secondary market transactions, and provisions for corporate bond redemption. However, low liquidity in the secondary market remains a concern, especially for retail investors.
Framework &Applicability:
Regulatory Basis:
The framework for the Liquidity Window facility is grounded in Regulation 15 of the SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021.
Issuers can provide a right of redemption (put option) to all investors or specifically to retail investors prior to the maturity date.
2. Issuer’s Choice:
Issuers may opt to provide the Liquidity Window facility at the time of issuing debt securities, specifying the terms and eligible investors.
3. Prospective Applicability:
The facility applies to new issuances of debt securities, whether through public offerings or private placements.
Features and Conditions:
Authorizations:
The Liquidity Window facility requires prior approval from the issuer’s Board of Directors and must be monitored by the Stakeholders Relationship Committee or an appropriate board-level committee.
The facility must be objective, transparent, and non-discriminatory among eligible investors.
2. Eligibility of Securities:
Liquidity Window facilities can be offered for debt securities after one year from the date of issuance.
Re-issuances under the same ISIN are not permitted.
3. Investor Eligibility:
The issuer will determine whether the Liquidity Window facility is available to all investors or only to retail investors, with the requirement that eligible investors hold the securities in dematerialized form.
4. Limits and Schedules:
Issuers must specify the percentage of the issue size that constitutes the aggregate limit for put option exercises, with a minimum of 10% of the final issue size.
The liquidity window will be open for three working days, with options to operate monthly or quarterly.
5. Exercise of Put Options:
Eligible investors can exercise put options during trading hours by blocking the securities in their demat accounts.
Investors may modify or withdraw their bids within the liquidity window session.
6. Valuation and Payment:
Debt securities will be valued on the day prior to the liquidity window opening, and payments to investors will be processed within one working day after the closure of the liquidity window.
7. Disclosure Requirements:
Issuers must disclose detailed information about the Liquidity Window facility on their websites, including ISIN specifics, outstanding amounts, credit ratings, and schedules.
SW-Remarks:
This circular is effective from 1st November 2024. This Issuers must report the outcomes of the liquidity window within three working days after closure and disclose detailed information about the securities available under this facility on their website.
