SEBI Corporate Bond Liquidity Window Sees Little Use
Why in the news
A SEBI tool meant to let bond investors exit early is barely used, because issuers mostly choose not to offer it.
Background
- Weak secondary market liquidity has long troubled corporate bonds.
- Institutions typically hold till maturity, discouraging retail participation.
- SEBI answered with a put option based window.
How it works
| Element | Rule |
|---|---|
| Coverage | Listed non-convertible securities |
| Offered to | All investors or only retail, as the issuer decides |
| Exercise | One year after issuance |
| Reserve | 10% minimum of issue size; board approval; equal treatment |
| Window | Monthly or quarterly; three working days |
| Excess demand | Proportionate acceptance |
| Afterwards | Resell via exchange, RFQ or online platform, or extinguish within 45 days |
| Settlement | Investor paid in 1 working day; T+4 final |
Valuation and pricing
- Valuation on a T-1 basis.
- Price discount capped at 100 basis points, with accrued interest added.
- Aim: investor protection.
Exam angle
- Tool: put option; regulator: SEBI.
- Numbers: 10%, 3 days, 45 days, T+4.