Description

Operational guidelines for availing liquidity window facility through stock exchange mechanism for exercise of put options on debt securities, including bid placement, allocation, and settlement procedures.

Summary

BSE has issued operational guidelines for the liquidity window facility for debt securities, enabling investors to exercise put options through the stock exchange mechanism. The facility follows SEBI circular SEBI/HO/DDHS/DDHS-PoD-1/P/CIR/2024/141 dated October 16, 2024. The guidelines cover bid placement procedures, early pay-in requirements through depository blocking mechanism, allocation methodology by RTAs, and settlement processes involving clearing members.

Key Points

  • Liquidity window facility available on stock exchanges with nationwide trading terminals through a separate window
  • Issuers can choose one or more stock exchanges, with one designated as the Designated Stock Exchange (DSE)
  • Issuers must appoint an RTA for allocation and a clearing member for settlement
  • Investors exercise put option rights through stock brokers 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
  • Cumulative quantity of securities with exercised put options displayed online at specific intervals
  • SEBI-debarred investors restricted from participating
  • Early pay-in (EPI) through block mechanism mandatory before bid placement
  • Facility available for multiple ISINs simultaneously
  • Liquidity window closes on T+2 working day (T = first day of window)

Regulatory Changes

Implements SEBI circular reference SEBI/HO/DDHS/DDHS-PoD-1/P/CIR/2024/141 dated October 16, 2024, establishing stock exchange-based mechanism for liquidity window facility in debt securities market. Creates standardized operational framework for put option exercise through exchange infrastructure.

Compliance Requirements

For Issuers:

  • Select and declare Designated Stock Exchange (DSE) if using multiple exchanges
  • Appoint Registrar and Transfer Agent (RTA) for allocation purposes
  • Appoint clearing member for settlement purposes

For Investors:

  • Execute early pay-in (EPI) through block mechanism in depository system before placing bids
  • Place bids through registered stock brokers or OBPP
  • Cannot tender locked-in securities
  • Must comply with depository blocking requirements in specified settlement type and number

For Depositories:

  • Mark EPI 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 CC to cancel EPI
  • Release securities only after confirmation of bid revision from CC
  • Share investor PAN, beneficiary account details, and bank details including IFSC code with CCs

For RTAs:

  • Receive bids upon liquidity window closure (T+2)
  • Specify accepted quantity and draw up allocation (full value or proportionate basis)
  • Treat all eligible investors at par for allocation, except when window is limited to retail investors
  • Share allocation file with allocation details including TDS

For Stock Exchanges:

  • Restrict SEBI-debarred investors from bid placement
  • Display cumulative quantity of securities with exercised put options online at specific intervals
  • Provide 30-minute extension on last day for custodian confirmation

Important Dates

  • Trading Hours: 9:00 AM to 5:00 PM during liquidity window period
  • Last Day Extension: Additional 30 minutes for custodian confirmation
  • Liquidity Window Closure: T+2 working day (where T = first day of liquidity window)
  • Allocation: Upon closure of liquidity window on T+2

Impact Assessment

Market Impact: Provides structured exit mechanism for debt security investors through put option exercise, enhancing liquidity in debt markets. Standardizes process across exchanges, improving transparency and investor confidence.

Operational Impact: Requires integration between multiple entities (exchanges, depositories, RTAs, clearing members). Mandatory early pay-in through blocking mechanism adds operational step but ensures settlement certainty. Multiple ISIN facility increases flexibility for issuers conducting simultaneous put option windows.

Investor Impact: Simplifies put option exercise through familiar stock exchange infrastructure. Real-time visibility of cumulative exercise quantities aids decision-making. Proportionate allocation in oversubscription scenarios ensures fair treatment across investor categories.

Infrastructure Impact: Requires depository systems to support blocking mechanism for multiple ISINs simultaneously. Clearing Corporations need capability to receive blocked securities data and provide EPI cancellation facility to depositories.

Impact Justification

Establishes operational framework for liquidity window facility for debt securities put options. Important for debt market participants but limited to specific instrument type.