RBI Grade BNABARD ESISEBI
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A corporate bond liquidity window introduced by SEBI in November 2024 to improve liquidity in India’s corporate bond market has seen negligible usage, with issuers largely opting not to offer the facility.
Background
- India’s corporate bond market has long been criticised for low secondary market liquidity
- Institutional investors typically hold bonds till maturity
- This has discouraged retail investor participation
- To address this, SEBI introduced a liquidity window mechanism via put options
About SEBI’s Liquidity Window Framework
- A mechanism allowing investors to exit corporate bonds early
- Issuers can offer put options, enabling investors to sell bonds back to the issuer at pre-specified intervals
Applicability
- Applies to listed non-convertible securities
- Offered at issuer’s discretion:
- To all investors, or
- Only to retail investors
- Facility can be exercised one year after issuance
Key Features of the Framework
- Issuers must:
- Reserve at least 10% of final issue size for buybacks
- Obtain board approval
- Ensure non-discriminatory treatment of investors
- Liquidity window:
- Can be opened monthly or quarterly
- Open for three working days
- If demand exceeds limits:
- Bonds accepted on a proportionate basis
- Post window:
- Issuer must sell bonds via exchange/RFQ/online platform or extinguish them within 45 days
- Settlement:
- Payment to investors within 1 working day
- Final settlement on T+4 basis
Valuation & Pricing Rules
- Bonds valued on T-1 basis
- Buyback price:
- Cannot be at a discount of more than 100 basis points
- Plus accrued interest
- Aim: Investor protection
