SEBI has introduced a liquidity window facility for investors in debt securities through the stock exchange mechanism.
With the help of this facility, investors holding listed debt securities can sell these securities back to the issuer by exercising the put option on specific dates. This ensures liquidity. SEBI said in a circular that the liquidity window facility will be available from November 1. This will prove to be very useful for investors, especially retail investors, and can help them increase their investment in such debt securities.
SEBI found that corporate bonds are considered illiquid because many institutional investors hold them till maturity, leading to low trading activity. To improve liquidity, especially for retail investors, SEBI has introduced a framework under which issuers can provide liquidity window facility.
The decision will depend on the issuer
Under this, issuers can choose whether to provide this facility for debt securities at the time of issue. This applies to new issuances of debt securities through public offers or private placements. SEBI said that this facility requires board approval and monitoring by the Stakeholders Relationship Committee (SRC) or equivalent board-level committee. It should be transparent, objective and non-discriminatory towards eligible investors.
This facility will be available for one year after its release
The liquidity window facility will be available for one year after issuance. Securities under the scheme cannot be reissued. Sebi said issuers may restrict eligibility to all investors or only to retail investors, provided they hold the securities in demat form. At least 10% of the issue size should be allocated to the liquidity window, with sub-limits restricting the number of securities that can be offered per window. If demand exceeds the limit, acceptance will be proportionate.
The window will remain open for 3 working days
The liquidity window will be open for 3 working days and may operate on a monthly or quarterly basis, with notifications sent via SMS or WhatsApp at the beginning of the financial year. Investors can exercise the put option by blocking securities in their demat accounts during trading hours, with the option to modify or withdraw bids. Settlement will take place within 4 working days. The payment will be made one day after the window closes. Issuers cannot offer a discount of more than 100-basis points on valuation plus accrued interest.
What are the instructions for issuers
Issuers are required to dispose of the securities purchased within 45 days, either selling them on the exchanges or liquidating them. Any sale will offset the utilisation limit for future windows. The circular also states that a report on the utilisation of the window should be submitted to the stock exchanges within 3 working days. Issuers should disclose ISIN-wise details, such as outstanding amounts, coupon rates and schedules, on their websites and update stakeholders within 24 hours of the change.
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