Description

Operational guidelines for the Debt Liquidity Window mechanism introduced by SEBI for investors in debt securities through stock exchange platform.

Summary

BSE has issued comprehensive operational guidelines for the Debt Liquidity Window (DLW) mechanism, following SEBI circular SEBI/HO/DDHS/DDHS-PoD-1/P/CIR/2024/141 dated October 16, 2024. The DLW facility allows issuers of debt securities to provide a liquidity mechanism for investors through the stock exchange platform. This is an optional facility available for prospective debt security issuances (public or private placement) on an ISIN basis, requiring Board approval and monitoring by the Stakeholders Relationship Committee.

Key Points

  • Debt Liquidity Window is an optional facility for issuers to provide liquidity to debt security investors
  • Applicable only for prospective issuances of debt securities (public issue or private placement basis)
  • Must be provided on an ISIN basis at the time of issuance
  • Requires prior approval from the issuer’s Board of Directors
  • Implementation must be monitored by Stakeholders Relationship Committee (SRC) or Board-level committee
  • Facility must be objective, transparent, non-discretionary and non-discriminatory
  • Trading system includes bid entry module with bulk upload facility
  • Settlement process covers both DEMAT securities and funds settlement
  • Includes provisions for order placement, modification, cancellation and execution
  • Give-up facility available for bid entry
  • Contract notes to be generated for all trades

Regulatory Changes

This circular implements SEBI’s new framework for introducing liquidity windows in debt securities markets. Key regulatory aspects include:

  • Mandatory Board approval requirement for implementing DLW facility
  • Oversight mechanism through SRC or Board-level committees
  • Framework ensures transparency and non-discriminatory access
  • Establishes standardized operational procedures for DLW on BSE platform
  • Defines categories for bidding and order placement parameters
  • Sets trading calendar, market timings and trading hours for DLW
  • Prescribes transaction charges, STT and other levy structures

Compliance Requirements

For Issuers:

  • Obtain prior Board of Directors approval before offering DLW facility
  • Ensure monitoring by Stakeholders Relationship Committee (for entities with listed specified securities) or Board/Board-level committee (for debt-only entities)
  • Provide notice to stock exchange using prescribed format (Annexure 2)
  • Submit Software Usage Undertaking (Annexure 3)
  • Submit Liquidity Window Undertaking (Annexure 4)
  • Ensure DLW facility is objective, transparent, non-discretionary and non-discriminatory

For Members/Brokers:

  • Configure system requirements for DLW trading
  • Use iBBS (internet-Based Bidding System) for bid entry and processing
  • Follow prescribed bid entry process flow and deposit procedures for DEMAT securities
  • Generate and provide contract notes to clients
  • Handle clearing and settlement as per prescribed timelines
  • Process end of issue files including trade files

Important Dates

No specific effective dates mentioned in the circular. The guidelines become operational once issuers opt to provide the DLW facility for their debt securities. Trading hours for DLW to be specified in trading calendar (details in section 2.1).

Impact Assessment

Market Impact:

  • Introduces new exit mechanism for debt security investors, potentially improving liquidity in debt markets
  • May encourage more retail participation in debt securities by addressing liquidity concerns
  • Provides standardized mechanism for price discovery in debt securities through exchange platform

Operational Impact:

  • Requires BSE members to integrate DLW functionality into their trading systems
  • Issuers need to establish governance framework with Board approval and committee monitoring
  • Settlement infrastructure needs to accommodate DLW trades alongside regular debt trading
  • Exchange needs to provide bid entry module, bulk upload facility, and reporting systems

Investor Impact:

  • Provides optional liquidity facility for investors holding debt securities where issuer has opted for DLW
  • Offers transparent, exchange-based mechanism for exiting debt security positions
  • Access to standardized bidding process with defined order placement parameters

Compliance Impact:

  • Adds governance requirements for issuers (Board approval, committee oversight)
  • Requires documentation through multiple undertakings and notices
  • Members need to ensure proper contract note generation and settlement procedures for DLW trades

Impact Justification

Introduces a new liquidity mechanism for debt securities that significantly impacts debt market operations, issuer obligations, and investor exit options. Requires operational changes for issuers, members, and the exchange infrastructure.