This measure aims to improve liquidity in the corporate bond market.
What is the liquidity line?
He liquidity window will allow investors hold listed debt securities to exercise a put option on specific dates.
This option will allow them to sell their securities to the issuer.
Key Features of the Liquidity Window
Eligibility: Issuers can decide whether to offer this facility during the issuance of the bond, applicable to both public offerings and private placements.
Approval Requirement: The facility requires board approval and must be overseen by a Stakeholder Relations Committee (SRC) or equivalent committee.
Allocation: At least 10% of the total issue size must be allocated to the liquidity window.
However, issuers may impose sub-limits on the number of securities offered during each window.
Trading window: The liquidity window will remain open for three business days.
It can operate on a monthly or quarterly basis, with notifications sent via SMS or WhatsApp at the beginning of each year.
Exercise of put option: Investors can exercise put option by locking securities in their demat accounts during trading hours.
They can modify or withdraw their offers as necessary.
Settlement and pricing: Settlement of transactions will occur within four business days and payments will be made one day after the window closes.
Importantly, issuers cannot offer a discount of more than 100 basis points to the valuation displayed on their websites and exchanges.
Management of acquired securities: Issuers must manage the acquired securities within a period of 45 days, either by reselling them on exchanges or extinguishing them to reduce outstanding balances.
Why the change?
SEBI has noted that corporate bonds are often perceived as illiquid assets. Many institutional investors hold these bonds until maturity, resulting in low trading volumes.
To address this issue, SEBI has created a framework that allows issuers to offer this liquidity window at the time of bond issuance, thereby boosting business activity and investor confidence.
Vishal Goenka, co-founder of IndiaBonds.com, termed this move as “pioneering” for the development of the corporate bond market.
He stated: “This is another innovative and progressive action by SEBI “That’s not available anywhere else in the world.”
Goenka emphasized that the true effects of this policy will manifest over the next year, boosting confidence among retail investors and fostering a more vibrant bond market. He highlighted that regulatory changes are crucial for India’s economy to grow to a target of $7-8 trillion by 2030, with capital creation largely dependent on capital markets.
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