Sebi introduces Liquidity Window to improve participation in corporate-bond market

This step is meant to reassure investors about better liquidity in this segment.

To improve participation in the corporate bond market, the regulator has introduced a Liquidity Window facility, said a circular issued on Wednesday.

With this, issuers can give investors put options that are exercisable on pre-specified dates or intervals. Put option allows investors to redeem debt securities before their maturity date.

The circular from the Securities and Exchange Board of India (Sebi) on October 16 said, "One of the factors that drives investor participation in a market is the availability of liquidity. Low levels of secondary market transactions in corporate bonds (including due to a large number of institutional investors holding such bonds to maturity) has resulted in the corporate bond market being perceived as illiquid."

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"To address the issue of liquidity for investors, especially retail investors, and pursuant to discussions with issuers / potential issuers of debt securities, it is felt that establishing a framework of providing a Liquidity Window facility by the issuers through use of put options exercisable on pre-specified dates or intervals will provide uniform norms for such issuer(s) to consider adopting Liquidity Window facility in the manner specified. Such uniform norms and instituting a Liquidity Window facility as contemplated in this circular will also be of immense utility to investors, especially retail investors, and can serve to enhance their investment in such debt securities."

Under this new facility, the issuing entity can decide whether to provide a Liquidity Window and for which investors. Investors who want to avail this facility will need to hold the securities in demat form, said the circular.

The issuer can provide Liquidity Window facility only after the expiry of one year from the date of the issuance of the debt securities. Re-issuances will not be permitted under the ISINs in which Liquidity Window facility is offered, said the regulator's circular.

On the schedule of the Liquidity Window and informing the investors of the same, the circular said, "The liquidity window shall be kept open for three working days. The liquidity window may be operated a monthly/ quarterly basis at the discretion of the Issuer. The schedule of liquidity window/s shall be disclosed upfront in the offer document. The notice/ intimation regarding the  liquidity window through put option shall be made within five working days via SMS/ WhatsApp messaging from the start of each financial year regarding the Liquidity Window facility being available on monthly/ quarterly basis in that respective financial year. Such notice/ intimation shall be treated as compliance with Regulation 15(6)4 of the NCS Regulations."