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SEBI proposal to lower ticket size of debt instruments for retail investors

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Debt Security

The Securities and Exchange Board of India (SEBI) has recently invited public comments on a Consultation Paper focused on a review of provisions of NCS Regulations and LODR Regulations for ease of doing business and introduction of fast track public issuance of debt securities.  

This Consultation Paper follows the announcement in the Union Budget for FY 2023-24 by the Finance Minister Smt. Nirmala Sitharaman ji, asking financial sector regulators to comprehensively review regulations to bring in order to “simplify, ease and reduce cost of compliance”. Following the same, SEBI had set up 16 working groups including one to review the SEBI (Listing Obligation and Disclosure Requirements) Regulations, 2015 (LODR Regulations), and SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021 (NCS Regulations) in relation to Debt Issuers.  

The SEBI Consultation Paper proposes several key changes inter alia in relation to Fast Track of Public Issues, additional disclosure requirements such as regulatory action for public issue of debt securities, streamlining the offer document size by introduction of a QR code etc.  

One of the proposals seeks to lower the entry ticket size for NCDs and NCRPS from INR 1 Lakh to INR 10,000.  

Currently, the face value mandated for debt security or non-convertible redeemable preference share issued on private placement basis is INR 1 lakh. However, according to SEBI, the non-institutional investors consider this high-ticket size as an entry barrier to participate in the corporate bond market. With the advent of registered online bond platforms, there has been an increase in the participation of non-institutional investors. However, such issues will have to be subjected to due diligence by a merchant banker and the issuance shall be plain vanilla i.e. interest / dividend bearing instruments with a simple structure.  

Similarly, for Securitised Debt Instruments (SDIs), issuers can offer SDIs to investors by acquisition of such privately placed debt instruments, which are duly rated. Currently, the SDI Regulations do not mandate a face value or appointment of merchant banker and thus, to ensure risk mitigation, SDIs can have face value of INR 1 lakh or INR 10,000 subject to appointment of a merchant banker to conduct due diligence.  

While the intent of the proposal to lower the ticket size to allow for more non-institutional participant in the bond markets is a welcome move, SEBI should continue to remain conscious of the higher risks involved and ensure issuers are making adequate and correct disclosures to prevent issues such as mis-selling and down selling of such debt securities.  

Readers are welcome to send their views to Regstreet Law Advisors at info@regstreetlaw.com

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