Sebi brings in liquidity window facility. How would that impact investors?
Under the new mechanism, Sebi observed that issuers have the option to offer put options to investors that can be exercised on specific dates or intervals. This allows investors to redeem debt securities before their maturity date.
- Oct 17, 2024,
- Updated Oct 17, 2024 2:36 PM IST
The Securities and Exchange Board of India (Sebi) on October 17 announced the introduction of liquidity window facility for investors in debt securities. From November 1, the new liquidity window facility will allow investors to sell listed debt securities back to issuers.
Under the new mechanism, Sebi observed that issuers have the option to offer put options to investors that can be exercised on specific dates or intervals. This allows investors to redeem debt securities before their maturity date.
The presence of liquidity is identified as a key factor in driving investor engagement in a market. The lack of significant secondary market activity in corporate bonds, partly due to the high number of institutional investors holding bonds until maturity, has led to the perception of the corporate bond market as illiquid.
The liquidity window feature enables investors who own listed debt securities to utilize a put option to sell them back to the issuer on specified dates, guaranteeing liquidity.
According to the circular by Sebi, this feature, which will be accessible starting from November 1, will be highly beneficial for investors, including retail investors, by enhancing their participation in these debt securities.
Sebi noted that corporate bonds are often considered illiquid due to institutional investors holding onto them until maturity, resulting in minimal trading activity. To address this issue and boost liquidity, especially for retail investors, Sebi has introduced a framework allowing issuers to provide a liquidity window feature.
"In surveys we have conducted, 73% of users regard lack of liquidity as the #1 reason to not invest in bonds. Infact every other retail investment product from FD, MFs, Stocks and till recently P2P offers access to instant redemption and liquidity. SEBI's latest guidelines for a liquidity window are a significant step in addressing this gap. It is however yet to be seen how many issuers agree to offer this feature as it does put some pressure on their balance sheet and needs to be factors into their asset-liability matching," said Nikhil Aggarwal, Founder & Group CEO, Grip Invest.
According to Sebi, issuers have the option to provide this feature for debt securities during issuance. This applies to new debt securities issued through public offerings or private placements.
Sebi also mentioned that this feature must be approved by the board and overseen by the Stakeholders Relationship Committee (SRC) or a similar committee at the board level. It should be fair, impartial, and inclusive towards eligible investors.
The Securities and Exchange Board of India (Sebi) on October 17 announced the introduction of liquidity window facility for investors in debt securities. From November 1, the new liquidity window facility will allow investors to sell listed debt securities back to issuers.
Under the new mechanism, Sebi observed that issuers have the option to offer put options to investors that can be exercised on specific dates or intervals. This allows investors to redeem debt securities before their maturity date.
The presence of liquidity is identified as a key factor in driving investor engagement in a market. The lack of significant secondary market activity in corporate bonds, partly due to the high number of institutional investors holding bonds until maturity, has led to the perception of the corporate bond market as illiquid.
The liquidity window feature enables investors who own listed debt securities to utilize a put option to sell them back to the issuer on specified dates, guaranteeing liquidity.
According to the circular by Sebi, this feature, which will be accessible starting from November 1, will be highly beneficial for investors, including retail investors, by enhancing their participation in these debt securities.
Sebi noted that corporate bonds are often considered illiquid due to institutional investors holding onto them until maturity, resulting in minimal trading activity. To address this issue and boost liquidity, especially for retail investors, Sebi has introduced a framework allowing issuers to provide a liquidity window feature.
"In surveys we have conducted, 73% of users regard lack of liquidity as the #1 reason to not invest in bonds. Infact every other retail investment product from FD, MFs, Stocks and till recently P2P offers access to instant redemption and liquidity. SEBI's latest guidelines for a liquidity window are a significant step in addressing this gap. It is however yet to be seen how many issuers agree to offer this feature as it does put some pressure on their balance sheet and needs to be factors into their asset-liability matching," said Nikhil Aggarwal, Founder & Group CEO, Grip Invest.
According to Sebi, issuers have the option to provide this feature for debt securities during issuance. This applies to new debt securities issued through public offerings or private placements.
Sebi also mentioned that this feature must be approved by the board and overseen by the Stakeholders Relationship Committee (SRC) or a similar committee at the board level. It should be fair, impartial, and inclusive towards eligible investors.