Description

BSE issues operational guidelines for availing liquidity window facility through stock exchange mechanism for exercise of put options on debt securities, in accordance with SEBI circular dated October 16, 2024.

Summary

BSE has issued comprehensive 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 structured framework for investors to redeem debt securities during specified liquidity window periods. The guidelines cover the entire process from bid placement to allocation and settlement, requiring mandatory early pay-in through block mechanism and proportionate allocation in case of oversubscription.

Key Points

  • Liquidity Window facility available on stock exchanges with nationwide trading terminals as a separate window
  • Issuers can choose one or more stock exchanges, with one designated as the Designated Stock Exchange (DSE)
  • Issuers must appoint a Registrar and Transfer Agent (RTA) for allocation and a clearing member for settlement
  • Investors exercise put options through their stock broker or OBPP during normal trading hours
  • 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
  • Cumulative quantity of debt securities for which put option exercised is displayed online throughout trading session
  • Stock exchanges restrict participation of SEBI-debarred investors
  • Securities blocked in demat account until settlement date unless bid is withdrawn or modified
  • Locked-in securities cannot be tendered by investors

Regulatory Changes

  • Implementation of SEBI circular SEBI/HO/DDHS/DDHS-PoD-1/P/CIR/2024/141 dated October 16, 2024 regarding liquidity window for debt securities
  • Introduction of mandatory early pay-in through block mechanism for put option exercise
  • Standardized allocation process through RTA with proportionate basis in case of oversubscription
  • Equal treatment of all eligible investors regardless of category, except when window is specifically for retail investors only
  • Requirement for depositories to provide comprehensive information to clearing corporations including investor PAN, beneficiary account details, and bank details with IFSC code

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 registered stock broker or OBPP during normal trading hours
  • Complete mandatory early pay-in (EPI) through block mechanism before placing bids
  • Ensure securities are not locked-in if intending to tender

For Stock Exchanges:

  • Provide liquidity window from 9:00 AM to 5:00 PM
  • Display cumulative quantity of securities with put option exercised online at specific intervals
  • Restrict debarred investors from participating
  • Provide additional 30 minutes on last day for custodian confirmation

For Depositories:

  • Mark early pay-in through block mechanism in Beneficial Owner’s demat account
  • Provide blocked securities details to clearing corporations
  • Keep securities blocked until settlement date unless bid withdrawn/modified
  • Provide facility to clearing corporations to cancel EPI
  • Share information including investor PAN, beneficiary account details, and bank details with IFSC code

For RTA:

  • Receive bids upon closure of liquidity window (T+2 working day)
  • Specify accepted quantity and draw up allocation (full value or proportionate basis)
  • Treat all eligible investors at par for allocation
  • Share allocation file with allocation details including TDS information

Important Dates

  • T (First day of liquidity window): Commencement of liquidity window period
  • T+2 working days: Closure of liquidity window; bids shared with RTA for allocation
  • Trading Hours: 9:00 AM to 5:00 PM daily during liquidity window period
  • Last Day Extension: Additional 30 minutes provided for custodian confirmation on final day of liquidity window

Impact Assessment

Market Impact: The liquidity window facility enhances the debt securities market by providing a transparent and regulated mechanism for investors to exercise put options. This improves investor confidence in debt instruments and increases market liquidity for these securities.

Operational Impact: Issuers, RTAs, clearing members, depositories, and stock exchanges need to establish new operational workflows to support the liquidity window facility. The mandatory early pay-in requirement ensures settlement certainty but requires coordination between depositories and clearing corporations.

Investor Impact: Investors gain a structured and transparent process to exercise put options on debt securities during liquidity window periods. The proportionate allocation in case of oversubscription ensures fair treatment, though investors may receive partial allocations when demand exceeds available capacity.

Technology Impact: Stock exchanges and depositories need to implement systems for real-time display of cumulative put option exercises, early pay-in block mechanism, and seamless information flow between market participants. The facility must support multiple ISINs simultaneously when issuers open liquidity windows for multiple securities.

Impact Justification

Introduces new operational framework for debt securities liquidity window facility affecting issuers, investors, RTAs, and clearing members. Medium impact as it provides procedural clarity for a new facility but applies to specific debt securities transactions rather than broad market operations.