Description

BSE publishes operational guidelines for the Debt Liquidity Window (DLW) facility introduced by SEBI, allowing issuers to provide liquidity for debt securities through stock exchange mechanism.

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 liquidity to eligible investors through the stock exchange platform. This is an optional facility available on an ISIN basis for prospectively issued debt securities (both public issues and private placements). The guidelines cover system requirements, order placement processes, bid entry procedures, settlement mechanisms, and file formats for members.

Key Points

  • DLW is an optional liquidity facility that debt issuers can provide at their discretion on an ISIN basis
  • Applicable only to prospective issuances of debt securities through public issue or private placement (proposed to be listed)
  • Requires prior approval from the issuer’s Board of Directors
  • Implementation and outcomes must be monitored by Stakeholders Relationship Committee (SRC) or Board/board-level committee
  • Must be objective, transparent, non-discretionary and non-discriminatory
  • Trading conducted through BSE’s iBBS (Internet Based Book Building System)
  • Supports both manual bid entry and bulk upload functionality
  • Includes online give-up facility for bids
  • Settlement process follows standard DEMAT securities clearing procedures
  • Contract notes to be generated for executed trades
  • Transaction charges, STT and other levies applicable as per regulations

Regulatory Changes

This circular implements SEBI’s introduction of the Liquidity Window facility for debt securities investors. The key regulatory framework includes:

  • Issuers have the choice to provide DLW facility at the time of debt security issuance
  • Prospective applicability only - applies to new debt securities issuances going forward
  • Mandatory governance requirements including Board approval and committee-level monitoring
  • Framework ensures objective, transparent, non-discretionary and non-discriminatory implementation
  • Comprehensive operational guidelines covering trading hours, order parameters, bid categories, modification/cancellation rules
  • Settlement follows T+1 or as specified timeline for DEMAT debt securities
  • Detailed file format specifications for bulk uploads and end-of-issue trade files

Compliance Requirements

For Issuers:

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

For Trading Members:

  • Configure systems to support DLW trading functionality
  • Follow prescribed bid entry processes (manual or bulk upload)
  • Use specified file formats for bulk uploads (Annexure 1)
  • Generate contract notes for executed trades
  • Process Direct Payout Client (DPC) files as per format (Annexure 7)
  • Ensure timely clearing and settlement as per prescribed schedules
  • Download and process end-of-issue files (Annexure 6)

For Investors:

  • Deposit DEMAT securities as per prescribed process
  • Place orders within defined trading hours and parameters
  • Meet settlement obligations for funds and securities

Important Dates

  • SEBI Circular issued: October 16, 2024 (SEBI/HO/DDHS/DDHS-PoD-1/P/CIR/2024/141)
  • BSE Guidelines circular date: October 31, 2025
  • Effective date: Applicable for prospective debt security issuances from implementation
  • Trading hours: As specified in trading calendar (detailed in Section 2.1.1)
  • Settlement: T+1 or as specified for DEMAT debt securities

Impact Assessment

Market Impact:

  • Creates new secondary market liquidity mechanism for debt securities
  • Enhances investor confidence by providing exit options through exchange platform
  • May increase attractiveness of listed debt securities to retail and institutional investors
  • Standardizes liquidity provision framework across issuers

Operational Impact:

  • Trading members need to upgrade systems to support DLW functionality
  • Issuers opting for DLW must establish governance and monitoring mechanisms
  • Additional operational processes for bid entry, modification, cancellation and settlement
  • Bulk upload and file processing capabilities required for efficient operations
  • Contract note generation and clearing-settlement processes for new product type

Compliance Impact:

  • Issuers must obtain Board approvals and establish committee-level oversight
  • Multiple undertakings and notices required from issuers to Stock Exchange
  • Trading members must ensure adherence to bid entry rules and file format specifications
  • Ongoing monitoring requirements for SRC/Board committees of issuing entities

Strategic Significance:

  • Positions BSE as facilitator of debt market liquidity infrastructure
  • Aligns with SEBI’s objective of deepening corporate bond markets
  • Provides structured alternative to traditional redemption-only exit mechanisms
  • May encourage more entities to list debt securities given enhanced liquidity options

Impact Justification

Introduces new market infrastructure mechanism for debt securities trading with comprehensive operational framework affecting issuers, investors and trading members