Now, liquidity window facility for investors in debt securities

The Securities and Exchange Board of India (Sebi) on Wednesday evening introduced a liquidity window facility for investors in the debt securities through a stock exchange mechanism. The liquidity window facility allows investors holding listed debt securities to sell them back to the issuer using a put option on specific dates, ensuring liquidity.

This facility, available from November 1, would be of immense utility to investors, especially retail investors, and could serve to enhance their investment in such debt securities, Sebi said in a circular.

How investors will benefit?

SEBI in its circular gave companies who issue bonds to investors, a provision to provide a liquidity window for buy back of the bonds post issuance. This means investors will have the option to sell back the bonds, at least one year after the issuance, to the company for a specific period of time when the window is open. Also the discount at which the bonds can be bought back is capped at 100bps cheaper than the fair market value.

What has changed from past?

Retail investors in corporate bonds have highlighted low liquidity in the secondary market as one of the reasons not to invest. This initiative will encourage more retail bond investment via the SEBI-regulated online bond platforms as investors will now have a backstop measure to sell bonds if they require liquidity or funds.

Circular addresses concerns

Bonds give investors regular income plus flexibility to choose investment horizon and potential to earn higher returns than FDs depending on their risk appetite. One of the risks of bond investment has been that there may be less liquidity if investor wanted to sell their bonds before maturity. The circular now addresses the concerns of the investor by giving bond issuers the option to buy back and provide exit to investors if required.

What experts have to say?

Experts are of the view that this is another innovative and progressive action by SEBI for development of the corporate bond market. “ SEBI is providing investors a series of put options targeted mainly for retail investors at a discount to the prevailing market price,” Vishal Goenka, co-founder of IndiaBonds.com, said.