SEBI has issued a circular to solicit comments/ views/ suggestions from the public on the draft circular titled “Introduction of Liquidity Window facility for investors in debt securities through Stock Exchange mechanism”. The comments/ suggestions should be submitted online latest by September 06, 2024.
The introduction of a Liquidity Window facility framework seeks for inclusion of put options exercisable on pre-specified dates or intervals. This framework is expected to offer greater flexibility and liquidity to investors while balancing the issuer’s discretion and risk management considerations.
Issuer’s Choice and Applicability
The proposal grants issuers the discretion to offer the Liquidity Window facility on an ISIN-specific basis. The issuer can decide at the time of issuance whether to provide this facility for the listed debt securities. This is a key feature, as it allows issuers to cater the liquidity mechanism to the needs of different securities and market conditions.
The Liquidity Window framework is only applicable to future issuances of debt securities. These issuances can occur through either public offers or private placements that are intended to be listed. By limiting the applicability to prospective issuances, the proposal ensures that issuers and investors alike can make informed decisions based on the newly established norms.
Features and Conditions of the Liquidity Window Facility
- Authorizations and Governance
The introduction of this facility mandates the issuer to obtain prior approval from its Board of Directors. In the case of listed equity companies, the Stakeholders Relationship Committee (SRC) will monitor the implementation and outcomes of the liquidity window. For pure debt-listed entities where SRCs are not mandatory, the issuer’s Board or a designated board-level committee will oversee this function. Importantly, the facility must be objective, transparent, non-discretionary, and non-discriminatory within the eligible investor class. - Operation Period
The Liquidity Window can only be activated one year after the debt securities are issued. This buffer period helps manage early volatility and ensures that the securities have matured to a certain extent before the liquidity window is utilized. - Investor Eligibility and Limits
Issuers can determine the class of investors eligible for the Liquidity Window facility. Whether the facility is extended to all investors or restricted to retail investors, the eligibility must be specified upfront. Additionally, the debt securities must be held in demat form by eligible investors to participate. Issuers will also establish an aggregate limit (typically 10-15% of the final issue size) for put option exercises across the debt security’s tenure. Per-window sub-limits can also be defined, with excess tenders being accepted proportionately. - Designated Stock Exchange and Liquidity Window Schedule
Issuers may designate any stock exchange as the ‘designated stock exchange’ for liquidity purposes. The liquidity window must be open for a minimum of three working days on a monthly or quarterly basis, as determined by the issuer. The schedule and necessary notifications must be provided at the beginning of each financial year. - Valuation and Payment Mechanisms
Debt securities tendered under the put option will be valued on the day the liquidity window closes. The valuation methodology will align with SEBI’s mutual funds guidelines. Payment to investors must be made within one working day of the window’s closure. - Management of Received Securities
Within 45 days of the liquidity window’s closure (or earlier), issuers can sell the tendered securities via the stock exchange, RFQ platforms, online bond platforms, or extinguish them. Replenishment of the liquidity limit is possible through proceeds from these sales.
Reporting and Compliance
Issuers are required to submit reports to the stock exchange and provide information to depositories and debenture trustees within three working days post-closure of the liquidity window. These disclosures are essential for maintaining transparency and market integrity.
