Description

BSE introduces operational guidelines for investors to exercise put options on debt securities through a dedicated Liquidity Window facility on stock exchanges with nationwide trading terminals.

Summary

BSE has issued operational guidelines for the Liquidity Window facility that enables investors to exercise put options on debt securities through the stock exchange mechanism. This facility, mandated by SEBI circular SEBI/HO/DDHS/DDHS-PoD-1/P/CIR/2024/141 dated October 16, 2024, provides a separate window on stock exchanges with nationwide trading terminals for investors to redeem debt securities during specified liquidity window periods.

Key Points

  • Liquidity Window facility available on stock exchanges with nationwide trading terminals for put option exercise on debt securities
  • Issuers can choose one or more stock exchanges and must designate one as the Designated Stock Exchange (DSE)
  • Issuers must appoint a Registrar and Transfer Agent (RTA) for allocation and a clearing member for settlement
  • Trading hours: 9:00 AM to 5:00 PM, with additional 30 minutes on last day for custodian confirmation
  • Mandatory Early Pay-In (EPI) through block mechanism required before placing bids
  • Securities blocked in demat account until settlement date unless bid is withdrawn/modified
  • Allocation on T+2 working day (T = first day of liquidity window)
  • All eligible investors treated equally for allocation, except when window is retail-only
  • Proportionate allocation in case of oversubscription
  • SEBI-debarred investors restricted from participation

Regulatory Changes

This circular implements the operational framework mandated by SEBI circular SEBI/HO/DDHS/DDHS-PoD-1/P/CIR/2024/141 dated October 16, 2024, establishing:

  • Stock exchange mechanism for put option exercise through dedicated Liquidity Window
  • Early pay-in blocking requirements through depository system
  • Information sharing protocols between depositories, clearing corporations, and RTAs
  • Standardized trading hours and bid placement procedures
  • Allocation methodology ensuring equal treatment of investors

Compliance Requirements

For Issuers:

  • Select one or more stock exchanges for Liquidity Window facility
  • Declare one exchange as Designated Stock Exchange (DSE)
  • Appoint Registrar and Transfer Agent (RTA) for allocation purposes
  • Appoint clearing member for settlement purposes

For Investors:

  • Exercise put option through stock broker or OBPP during normal trading hours
  • Complete mandatory Early Pay-In (EPI) through block mechanism before bidding
  • Ensure securities are not locked-in (locked-in securities cannot be tendered)
  • Provide PAN, beneficiary account details, and bank details including IFSC code

For Stock Exchanges:

  • Provide Liquidity Window from 9:00 AM to 5:00 PM
  • Display cumulative quantity of debt securities for put option exercise online at specific intervals
  • Restrict SEBI-debarred investors from participating
  • Provide additional 30 minutes on last day for custodian confirmation

For Depositories:

  • Mark EPI block in Beneficial Owner’s demat account for debt securities
  • Provide blocked securities details to Clearing Corporations
  • Keep securities blocked until settlement date unless bid withdrawn/modified
  • Provide facility to CC to cancel EPI for bid revisions
  • Support blocking facility for multiple ISINs

For RTA:

  • Receive bids upon closure of liquidity window (T+2 working day)
  • Determine accepted quantity and allocation (full value or proportionate basis)
  • Treat all eligible investors at par except in retail-only windows
  • Share allocation file with allocation details including TDS information

Important Dates

  • SEBI Circular Reference Date: October 16, 2024
  • Liquidity Window Trading Hours: 9:00 AM to 5:00 PM daily during exercise period
  • Last Day Extension: Additional 30 minutes for custodian confirmation
  • Allocation Timeline: T+2 working days (T = first day of liquidity window)
  • Settlement: As per settlement type and number specified by Clearing Corporations

Impact Assessment

Market Impact:

  • Enhances liquidity for debt securities by providing structured exit mechanism for investors
  • Increases transparency through real-time display of cumulative put option exercise quantities
  • Standardizes put option exercise process across stock exchanges

Operational Impact:

  • Requires issuers to establish relationships with RTA and clearing members for liquidity window operations
  • Mandates investors to complete early pay-in blocking before bidding, ensuring settlement certainty
  • Creates coordination requirements between stock exchanges, depositories, clearing corporations, and RTAs
  • Provides facility for multi-ISIN liquidity windows, allowing operational efficiency for issuers

Investor Impact:

  • Provides transparent and regulated mechanism for exercising put options on debt securities
  • Ensures fair allocation through proportionate basis in oversubscription scenarios
  • Requires advance planning for early pay-in blocking before bid placement
  • Protects market integrity by restricting debarred investors from participation

Impact Justification

Introduces new operational framework for debt securities liquidity window facility affecting debt market investors and issuers, but applies to specific put option exercise scenarios rather than broad market operations