SEBI Launches Liquidity Window For Debt Securities Through Stock Exchange

On October 16, Sebi made available to debt securities investors a liquidity window facility via a stock exchange mechanism. To ensure liquidity, investors holding listed debt securities can use the liquidity window facility to sell them back to the issuer on predetermined dates by using a put option. According to a circular from Sebi, this facility, which is available as of November 1, will be extremely helpful to investors, particularly retail investors, and can help them increase their investment in such debt securities.

Illiquid is noted by SEBI

As a result of institutional investors holding corporate bonds until maturity and resulting in low trading activity, the regulator observed that corporate bonds are seen as barely liquid. Sebi established a structure that allows issuers to provide liquidity window facilities to increase liquidity, particularly for retail investors. Accordingly, at the time of issuance, issuers are free to decide whether to offer this facility for debt securities. It covers newly issued debt securities made available through private placements or public offerings.

The Stakeholders Relationship Committee (SRC) or a comparable board-level committee must approve the facility and oversee it, according to Sebi. It needs to be impartial, open, and non-discriminatory to qualified investors.

SEBI-imposed deadline

The securities under this scheme cannot be reissued, and their ISINs are not subject to regulatory ISIN limits. The facility will remain available for one year following the issuance. According to Sebi, issuers can limit eligibility to retail investors only or to all investors as long as they have the securities in demat form.

The liquidity window requires the allocation of at least 10% of the issue size, and the number of securities tendered per window is capped by sub-limits. If demand surpasses the limit, acceptance will be commensurate.

Notification at the beginning of the fiscal year

At the start of the fiscal year will see notifications sent via SMS or WhatsApp. The window can operate on a monthly or quarterly basis and will be open for business for three working days.

Investors can exercise their put option by holding securities in their demat accounts during trading hours and modifying or removing bids. The settlement is scheduled to take place in four working days, with payments being made the day following the window’s closure. The maximum discount that issuers are permitted to offer is 100 basis points on the valuation plus total interest accumulated.

A 45-day window

Issuers have 45 days to manage the purchased securities, either by selling them on exchanges or by extinguishing them, to replenish the usage limits for future windows.

Stock exchanges must receive reports on window usage within three working days, and issuers are required to notify stakeholders within 24 hours of any changes to ISIN-related information, including outstanding amounts, coupon rates, and schedules, on their websites.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.