SEBI introduces Liquidity Window facility to improve participation in corporate bond market

Market regulator SEBI has introduced a Liquidity Window facility to improve participation in the corporate bond market. SEBI noted that 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. It stated that one of the factors that drive 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.

SEBI said that 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.