SEBI proposes liquidity window facility for debt security investors

The Securities and Exchange Board of India (SEBI) has proposed to introduce a new liquidity window facility for investors in debt securities through the stock exchange mechanism, a move aimed to enhance liquidity in the corporate bond market, particularly for retail investors.

In its draft circular released on Friday, SEBI proposed that the liquidity window facility seeks to mitigate the issue by providing a regulated mechanism for issuers to offer put options on debt securities at pre-specified dates or intervals.

The facility will allow issuers to provide put options to investors, enabling them to sell their debt securities back to the issuer before maturity. It can be provided only for prospective issuances of debt securities through the public issue process or on a private placement basis (proposed to be listed).

The Securities and Exchange Board of India (SEBI) has invited public comments on the draft circular till September 6.

As per the circular, SEBI said "an entity issuing debt securities, which are proposed to be listed, may, at its option or discretion, provide the liquidity window facility for the debt securities on an International Securities Identification Number (ISIN) basis at the time of issuance of such debt securities and make such liquidity window facility available to the eligible investors in such debt securities.".

The regulator outlined that the issuers that choose to provide this facility will first obtain approval from their board of directors. The facility will be monitored by the stakeholders relationship committee in companies with listed equity.

For pure debt-listed entities, the board or a designated committee would oversee the process.

The issuer will provide liquidity window facilities only after the expiry of one year from the date of the issuance of the debt securities.

The regulator noted that issuers must determine the eligibility of investors who can access the facility, which may be restricted to retail investors or extended to all investors holding the securities in demat form.

The market regulator also proposed that there should not be less than 10% or 15% of the final issue size of the debt securities. In addition, issuers could set sub-limits for each liquidity window period, with any excess demand being accepted on a proportionate basis.

To ensure that investors are informed, SEBI said the "liquidity window will be kept open for three working days on a monthly/quarterly basis at the discretion of the issuer."

The issuers will be required to disclose the schedule of the liquidity window in the offer document. Further, investors will be notified of the availability of the facility at the start of each financial year via SMS or WhatsApp messaging.

The markets watchdog has also mandated that issuers report the details of the securities redeemed during each liquidity window to the stock exchange, debenture trustees, and depositories within three working days.

Additionally, information about the availability and usage of the liquidity window must be made publicly accessible on the websites of stock exchanges, depositories, and debenture trustees.