SEBI/HO/DDHS/DDHS -PoD -1/P/CIR/2024/141

guidelines · 1992 · State unknown

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Parent: THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 (7c4c1f5343adab106c3a94cafc08a5ecf5957ae7)

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CIRCULAR SEBI/HO/DDHS/DDHS -PoD -1/P/CIR/2024/141 To, Issuers who have listed and/ or propose to list Non-convertible Securities; Recognised Stock Exchanges; Registered Depositories; Recognised Clearing Corporation; Registered Credit Rating Agencies, Debenture Trustees, Merchant Bankers, Registrars to an Issue and Share Transfer Agents and Bankers to an Issue Madam/ Sir, Subject: Introduction of Liquidity Window facility for investors in debt securities through Stock Exchange mechanism The Corporate bond market serves as a critical source of funding for the issuers whilst providing an investment avenue for the investors. SEBI has been undertaking various measures to widen the investor base and also to encourage participation and transparency in the corporate bond market. Some of the measures include introduction of the electronic book Provider platform (EBP Platform) for debt securities issued on private placement basis , exceeding issue size Rs 50 crores, 'Request for Quote ' (RFQ) platform for secondary market transactions, reduction in the face value of debt securities issued on private placement basis (proposed to be listed), introduction of framework for Online Bond Platforms (refer https://www.sebi.gov.in/online-bond-platform-providers.html), introduction of corporate bonds repo platform operated by AMC Repo Clearing Limited (refer www.arclindia.com), etc . 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 October 16, 2024 number of institutional investors holding such bonds to maturity) has resulted in the corporate bond market being perceived as illiquid. To address the issue of liquidity for investors , especially retail inv

Rule TOC

1 · Regulation 2(k) of the NCS Regulations defines 'debt securities' as: debt securities' means non-convertible debt securities with a fixed maturity period which create or acknowledge indebtedness and includes debentures, bonds or any other security whether constituting a charge on the assets/ properties or not, but excludes security receipts, securitized debt instruments, money market instruments regulated by the Reserve Bank of India, and bonds issued by the Government or such other bodies as may be specified by the Board

2 · "retail investor" shall have the same meaning as mentioned under Regulation 15 of the NCS Regulations. Currently it reads as: "retail investor" shall mean the holder of non -convertible securities having the aggregate face value not more than rupees two lakh

6 · 1. Authorizations and guardrails: The Issuer shall ensure that the Liquidity Window facility provided in terms of provisions of this circular:

6 · 2.Debt securities eligible for the Liquidity Window facility, exclusion from ISIN count:

6 · 3. Eligibility of investors to avail the Liquidity Window facility: The Issuer shall specify eligibility of investors who can avail of the Liquidity Window facility i.e. whether the facility shall be available to all investors in the debt securities or only to retail investors in the debt securities . Eligible investors desirous of availing of the liquidity window shall hold the debt securities in demat form.

6 · 4. Aggregate limit of Liquidity Window facility and per liquidity window sub-limit: The Issuer shall determine and specify the percentage of the issue size (in terms of number of debt securities) 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% of final Issue size of such debt securities (in terms of number of debt securities) . The said percentage shall be disclosed in the offer document at the time of issuance of such debt securities . Issuer 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.

6 · 5.Designated Stock Exchange: Issuer may designate one of the Stock Exchanges as the 'Designated Stock Exchange' for the purpose of liquidity window facility .

6 · 6.Period of liquidity window: The liquidity window shall be kept open for three working days . The liquidity window may be operated a monthly/ quarterly basis at the discretion of the Issuer. The schedule of liquidity window/s shall be disclosed upfront in the offer document. The notice/ intimation regarding the liquidity window through put option shall be made within five working days via SMS/ WhatsApp messaging

3 · https://www.sebi.gov.in/legal/master-circulars/may-2024/master-circular-for-issue-and-listing-of-non-convertiblesecurities -securitised -debt -instruments -security-receipts-municipal-debt-securities-and-commercial-paper_83546.html

6 · 7.Mode and manner of availing the Liquidity Window facility: The mode and manner of exercise of put options through the Liquidity Window facility shall be as follows:

6 · 7.1. When the liquidity window opens , eligible investors can exercise the put option on debt securities by blocking the said securities in their demat account and utilizing the mechanism for notifying the exercise of put option to the issuer . Such exercise shall be done during trading hours.

6 · 7.2. Eligible investors may be permitted to modify or withdraw their bids during the liquidity window session .

6 · 7.3. All exercises of the put option on the debt securities received by the stock exchange until the end of trading hours on the date of closure of the liquidity window (i.e . day three of the Liquidity Window) and for which block is created shall be treated as duly tendered . However, if the window sub-limit specified by the Issuer is exceeded , the acceptance of the tendered debt securities shall be on a proportionate basis .

6 · 7.4. Stock exchanges , in consultation with clearing corporations and depositories , shall publish detailed operational guidelines regarding the mode and manner of availing the Liquidity Window facility , including the mechanism for exercising the put option to tender the debt securities , blocking of such debt securities in the

4 · Regulation 15(6) of the NCS Regulations is re-produced as under:

6 · 8. Valuation of debt securities, amounts payable and the date of payment: Debt securities shall be valued on 'T -1' day where T is the first day of the liquidity window . Such valuation shall be displayed at all times during the period of liquidity window , on the website of the Issuer and Stock Exchanges. Such valuation shall be done in accordance with Chapter 9: ' Valuation ' of Master circular for mutual funds dated June 27, 20245(as amended from time to time). Further, issuer shall ensure the amounts payable to investor shall not be 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 to the bank account linked with demat account of the eligible investor from which the debt security was tendered and transferred on the closure of the liquidity window . Further, settlement of debt securities shall be on 'T+4' day where T is the first day of the liquidity window .

6 · 9. Dealing with debt securities received by issuer pursuant to put option: Within fortyfive days of the closure of the liquidity window or before the end of the relevant quarter (whichever is earlier), the Issuer may deal with the debt securities received pursuant to tendering within the Liquidity Window facility in the following manner:

5 · https://www.sebi.gov.in/legal/master-circulars/jun-2024/master-circular-for-mutual-funds_84441.html

6 · 10.Reporting and disclosure requirements: The Issuer shall:

6 · 11.Issuers shall disclose on their website a list of ISINs for which liquidity window option is available. The following information shall be displayed per ISIN: