Sebi proposes capping ISINs for corporate bonds to enhance liquidity

With an aim to boost liquidity in the corporate bond market, Sebi on Friday suggested further capping the number of ISINs for such bonds issued on a private placement basis.

ISINs (International Securities Identification Numbers) code, which has 12 characters, is used for uniquely identifying securities like stocks, bonds warrants and commercial papers.

"Given that issuers are presently not utilising even half of the maximum ISINs allotted to them, it is felt that further capping of ISINs will not only reduce the fragmentation across the bond market and enhance liquidity premium but also help both issuers and investors alike," Sebi said in a consultation paper.

Accordingly, it has proposed to further restrict the number of ISINs maturing per financial year for corporate bonds issued on a private placement basis.

The regulator has suggested that 6 ISINs maturing per financial year should be allowed for plain vanilla debt securities as compared to 12 at present. Also, it has proposed to put a cap of 5 ISINs for structured debt securities.

In addition, it has been proposed to put a cap of 6 ISINs for the capital gains tax debt securities by the authorised issuers under the Income Tax Act. The current limit is 12.

The Securities and Exchange Board of India (Sebi) has sought comments from the public on the consultation paper till November 21.

The issuers have represented that capping of ISINs and re-issuing bonds in the same ISINs have aided them in better projection of cash flow requirements and thus enabling them to effectively carry out their Asset Liability Management (ALM) requirements, according to the consultation paper.

They have also stated that, procedurally, it has helped in reducing the multiplicity in formalities such as filing of offer documents, creation of ISINs and tracking covenants.

"It is observed that in case of Government Securities (G-Secs), the outstanding amount per ISIN is very high and a new ISIN is issued only once the outstanding amount in that ISIN reaches a particular threshold. This results in lesser fragmentation and hence enhanced liquidity and traction for G-Sec trading," Sebi noted.

Further, the regulator said in the consultation paper that if the number of ISINs per issuer is limited, fragmentation across various bonds will come down and hopefully, this may lead to enhanced liquidity in the secondary market.