Description

Operational guidelines for availing liquidity window facility through stock exchange mechanism for exercise of put option on debt securities.

Summary

BSE has issued operational guidelines for the liquidity window facility through stock exchange mechanism, enabling investors to exercise put options on debt securities. The circular implements SEBI circular SEBI/HO/DDHS/DDHS-PoD-1/P/CIR/2024/141 dated October 16, 2024. The facility allows investors to redeem debt securities through a dedicated window on stock exchanges with nationwide trading terminals during normal trading hours.

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)
  • Investors exercise redemption 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
  • Mandatory early pay-in (EPI) through block mechanism required before placing bids
  • Cumulative quantity of debt securities with put option exercised made available online throughout trading session
  • Allocation determined by RTA on T+2 working day after liquidity window closure
  • All eligible investors treated equally for allocation, except when window limited to retail investors only

Regulatory Changes

  • Implementation of SEBI circular reference SEBI/HO/DDHS/DDHS-PoD-1/P/CIR/2024/141 dated October 16, 2024
  • Introduction of structured liquidity window mechanism for debt securities put option exercise
  • Mandatory blocking of securities through early pay-in mechanism in depository system
  • Stock exchanges required to restrict investors debarred by SEBI from participating
  • Standardized process for bid placement, allocation, and settlement across exchanges

Compliance Requirements

For Issuers:

  • Declare one exchange as Designated Stock Exchange (DSE) if using multiple exchanges
  • Appoint Registrar and Transfer Agent (RTA) for allocation purposes
  • Appoint clearing member for settlement purposes
  • Support liquidity window for potentially multiple ISINs

For Investors:

  • Execute early pay-in (EPI) through block mechanism prior to placing bids
  • Exercise put option through registered stock broker or OBPP
  • Cannot tender locked-in securities
  • Provide complete details including PAN, beneficiary account, and bank details with IFSC code

For Stock Exchanges:

  • Provide liquidity window from 9:00 AM to 5:00 PM
  • Additional 30 minutes on last day for custodian confirmation
  • Restrict debarred investors from bidding
  • Share bids with RTA upon closure of liquidity window (T+2)
  • Display cumulative quantity online at specific intervals

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
  • Release securities only after confirmation from Clearing Corporation
  • Provide facility to CC to cancel EPI
  • Support blocking facility for multiple ISINs

For RTA:

  • Receive bids from exchanges upon liquidity window closure
  • Specify accepted quantity and draw up allocation (full value or proportionate)
  • Share allocation file with allocation details including TDS information
  • Process allocation on T+2 working day (T being first day of liquidity window)

Important Dates

  • T: First day of liquidity window
  • T+2: Closure of liquidity window and bid sharing with RTA for allocation processing
  • Trading window hours: 9:00 AM to 5:00 PM (with additional 30 minutes on last day)

Impact Assessment

Market Impact:

  • Provides structured exit mechanism for debt security investors through put option exercise
  • Enhances liquidity in debt securities market
  • Standardizes process across stock exchanges for uniformity
  • Increases transparency through real-time display of cumulative put option exercises

Operational Impact:

  • Requires coordination between multiple entities: issuers, exchanges, brokers, RTAs, clearing corporations, and depositories
  • Mandatory blocking mechanism ensures security availability for settlement
  • Proportionate allocation mechanism in case of oversubscription ensures fair treatment
  • Additional infrastructure required for handling multiple ISINs simultaneously

Investor Impact:

  • Simplified process for exercising put options on debt securities
  • Protection through mandatory early pay-in ensures commitment
  • Equal treatment for all investor categories (except retail-only windows)
  • Restriction on locked-in securities prevents unauthorized redemptions

Impact Justification

Establishes operational framework for liquidity window facility for debt securities, impacting debt market participants including investors, brokers, RTAs, and clearing members