The Securities and Exchange Board of India (SEBI) has issued a new circular introducing a Liquidity Window facility for investors in debt securities, aimed at enhancing liquidity and encouraging retail participation in the corporate bond market. This facility, which will be effective from November 1, 2024, allows issuers of debt securities to provide investors with the option to redeem their holdings before maturity through put options exercisable on pre-specified dates.
SEBI’s initiative addresses the limited secondary market activity in the corporate bond sector, which is often viewed as illiquid due to the high proportion of institutional investors holding bonds to maturity. By establishing this Liquidity Window framework, SEBI aims to standardize norms for issuers, thereby enhancing transparency and accessibility for retail investors.
Under the new guidelines, issuers may choose to provide this facility on an ISIN basis when issuing debt securities. The implementation requires board approval and monitoring by a Stakeholders Relationship Committee or a board-level committee, ensuring transparency and compliance with market integrity norms. Eligible investors will have the opportunity to exercise put options through designated stock exchanges during specific windows, which could operate on a monthly or quarterly basis.
The circular mandates that the Liquidity Window will remain open for three working days each time it is activated. Issuers are required to notify investors of the schedule at the beginning of each financial year. Valuation of securities will be displayed transparently, and any tendered securities exceeding issuer limits will be accepted proportionally.
SEBI has also set a minimum aggregate limit for the Liquidity Window at 10% of the issue size. Issuers will have various options to manage the debt securities received, such as selling them on stock exchanges or extinguishing them.
The new framework, part of SEBI’s efforts to expand the corporate bond market, seeks to create a more liquid and investor-friendly environment.
