Guidelines for providing dedicated Debt Segment on Stock Exchanges

CIR/MRD/DP/03/2013 dated January 24, 2013

To

All Stock Exchanges and Clearing Corporations

1. The market for debt securities differs from equity markets in several ways such as risk, returns, liquidity, type of participants and method of trading. While publicly issued debt securities are listed, traded and settled in a manner similar to equity, privately placed debt is usually traded between institutional investors on ‘Over the Counter’ (OTC) basis. Such OTC transactions are mandatorily reported on reporting platforms at FIMMDA, BSE and NSE. The settlement for such transactions is different from that in equity markets or publicly issued debt securities.

2. Whereas the equity markets in India offer trading infrastructure comparable to the best available globally, the debt markets lack such infrastructure. In order to cater to the unique characteristics of debt markets, it has been decided to provide dedicated a debt segment on the stock exchanges.

3. The debt segment shall offer separate trading, clearing, settlement, reporting facilities and membership to deal in:

(i) “debt securities” as defined in Securities and Exchange Board of India (Issue and Listing of Debt Securities) Regulations, 2008;

(ii) Government Securities, Treasury Bills, State Government loans, SLR and Non-SLR Bonds issued by Financial Institutions, municipal bonds, single bond repos, basket repos and CBLO kind of products subject to RBI approval, where required;

(iii) Securitized debt instruments as defined in SEBI (Public Offer and Listing of Securitised Debt Instruments) Regulations, 2008;

(iv) any other debt instruments as may be specified from time to time by the competent authority.

4. An existing stock exchange or new stock exchange desirous of setting up debt segment may make an application to SEBI, providing operational, regulatory and any other necessary details.

5. The broad framework /features for debt segment shall be as under-

(A) Listing:

This segment shall list all the securities and debt instruments mentioned at para 3 above.

(B) Trading:

(i) The debt segment shall offer electronic, screen based trading providing for order matching, request for quote, negotiated trades etc.

(ii) The trading facility may be provided using exchange network including using access methods such as internet trading, mobile trading or any other methods specified by SEBI.

(iii) The debt segment shall provide separate platforms for the markets described below-

a. Retail market – which shall be a market for listing of and trading in publicly-issued debt instruments and where participation by registered trading members can be on their own account or for execution of orders placed their clients.

b. Institutional market – which shall be a market for non-publicly-issued debt instruments with a market lot size of minimum Rs 1 crore.

(iv) In addition to institutional investors, Direct Market Access (DMA) facility shall be extended to other investors to participate in Institutional market of debt segment. In this regard, the provisions as stipulated in SEBI circular MRD/ DoP/SE/Cir- 7 /2008 dated April 03, 2008, MRD/DoP/SE/Cir- 03 /2009 dated February 20, 2009 and CIR/MRD/DP/ 20 /2012 August 02, 2012 and modifications thereto shall be applicable.

(C) Trading Rules:

(i) The trading hours shall be from 9:00 hours to 17:00 hours to be in alignment with trading hours of government securities as issued by RBI.

(ii) The day count convention of Actual/Actual shall be followed for calculating interest rates.

(iii) The stock exchange shall facilitate availability of price quotes on clean price, dirty price and yield.

(iv) There shall be no shut period during which trades/ transfers are restricted for payment of interest or part redemptions. For other corporate actions such as redemptions/ put-call options, issuers may choose to specify a shut period.

(v) The record date shall be fixed not more than 15 days prior to date of corporate action which shall be displayed on trading terminal by stock exchanges.

(vi) In case of negotiated trades by members of the debt segment, the trades shall be reported to stock exchange within 30 minutes of the trade.

(D) Clearing and Settlement:

(i) All trades shall be cleared and settled through a clearing corporation. For this purpose, all trading members shall be self clearing members or may clear through a clearing member.

(ii) The settlement shall depend on the market type, as given below:

a) For institutional market: All trades shall be settled on T+1 rolling settlement on DVP-I basis using RBI RTGS account. Stock exchanges/clearing corporation may opt to provide clearing and settlement on DVP-II or DVP-III basis for this market in future and shall put in place appropriate risk management framework for the same.

b) For retail market: The trades shall be settled on T+2 rolling settlement on DVP-III basis with settlement guarantee.

(E) Risk management framework:

(i) For retail market, a uniform margin rate of 10% shall be applicable on debt instruments with rating of AA or above (or with similar rating nomenclature) by recognised credit rating agencies and 25% for all other debt instruments. Further, in case of shortages, there shall be compulsory close-out with a mark up of 5% in case of debt instruments which are assigned a credit rating of AA and above and 10% in case of other debt instruments.

(ii) For institutional market, as and when settlement is done on DVP-II or DVP-III basis, appropriate margins may be prescribed after approval by SEBI.

(iii) The clearing corporation shall specify appropriate risk management framework for each market, wherein it shall, inter-alia, provide for computation and collection of margins, capital adequacy norms and collateral requirements for the clearing members, settlement guarantee fund as applicable. This shall be approved by SEBI.

(F) Trade repository:

With an objective to have centralised repository for trades in debt instruments, the stock exchanges shall report trade information to a common trade repository as may be specified by SEBI.

(G) Membership:

(i) Any entity desirous of becoming trading member, self clearing member and/or clearing member of debt segment shall seek registration under SEBI (Stock Broker and Sub-Broker) Regulations, 1992.

(ii) Institutions such as scheduled commercial banks, primary dealers, pension funds, provident funds, insurance companies, mutual funds and any other investors as may be specified by sectoral regulators from time to time, can trade on the debt segment either as clients of registered trading members or directly as trading member on proprietary basis only (i.e own-account trades only). Such institutions desirous of trading on own account only shall be given trading membership under SEBI (Stock Broker and Sub-Broker) Regulations, 1992 as proprietary trading member.

(iii) For an interim period of six months from the date of this circular or till the application for registration as per amended SEBI (Stock Broker and Sub-Broker) Regulations,1992 is refused by the Board or till cessation of membership, whichever is earlier, the transitional provisions shall be –

a. Institutional market of debt segment: Any existing registered trading member and/or clearing member/self clearing member in derivative segment or currency derivatives segment desirous of trading or clearing trades in debt segment shall be permitted to trade or clear trades.

b. Retail market of debt segment: Any existing registered stock broker/trading member and /or clearing member/self clearing desirous of trading or clearing trades in debt segment shall be permitted to trade or clear trades.

(iv) The trading member, proprietary trading member, clearing member and self clearing member of debt segment shall have net worth and deposit as prescribed in SEBI (Stock Broker and Sub-broker) Regulations, 1992.

(v) The Base Minimum Capital for stock broker/trading member shall be in line with SEBI circular dated December 19, 2012.

(vi) The stock exchanges and clearing corporation may specify additional membership criteria for trading member/proprietary trading member and clearing member/self clearing member respectively.

(H) Market Making:

With the view to infuse liquidity in the market, market makers shall be permitted in the debt segment. Market making may be provided by merchant bankers, issuers through brokers or any other entity as may be specified. The rules for market making shall be specified by the stock exchanges with approval of SEBI.

6. The stock exchanges and clearing corporations desirous of introducing debt segment are advised to –

(i) Incorporate /frame separate Bye Laws, Rules and Regulations on debt segment in consonance with aforesaid guidelines

(ii) Make necessary amendment to their existing byelaws, rules and/or regulations , if required

(iii) Send duly completed application for introducing debt segment to SEBI, along with necessary byelaws and rules.

7. This circular is being issued in exercise of powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act, 1992 to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.

Click here to download the above Circular in PDF Format.

Source: Securities and Exchange Board of India.

Debt Allocation Mechanism for FII

CIRCULAR, CIR/IMD/FIIC/1/2013, dated January 01, 2013

To

All Foreign Institutional Investors

through their designated Custodians of Securities

1. SEBI vide circular CIR/IMD/FIIC/1/2012 dated January 03, 2012 had provided the facility of re-investment of up to two years from the date of the circular or to the extent of twice the size of the debt portfolio, to those FIIs and sub-accounts that had already acquired limits and/or invested in debt in the manner prescribed in the said circular. The facility of reinvestment period was not allowed for all new allocations of debt limits to FIIs/subaccounts after the issuance of the said circular.

2. SEBI vide circular CIR/IMD/FIIC/22/2012 dated November 07, 2012 had stated that beginning January 01, 2014, the FIIs/Sub-Accounts could re-invest during each calendar year to the extent of 50% of their debt holdings at the end of the previous calendar year. It is clarified that from January 01, 2014 onwards, the circular CIR/IMD/FIIC/22/2012 dated November 07, 2012 will be applicable uniformly to all FIIs investing in debt securities irrespective of whether the FII had acquired limits/made investments before January 03, 2012 or not.

3. In light of the representations received and in order to provide operational flexibility to those FIIs/ sub-accounts which did not hold any debt investment limits as on January 03, 2012 and purchased debt investment limits thereafter, it has been decided that they shall be allowed a cumulative re-investment facility to the extent of 50% of their maximum debt holding at any point of time during the calendar year 2013.

4. To illustrate, an example is given below:

An FII/ Sub-Account “XYZ” did not hold any debt investment limits as on January 03, 2012. It had purchased fresh debt limits on January 07, 2012. The following table gives the particulars of XYZ’s transactions in debt securities:

Step	Buy	Sell	Current Holding	Maximum holding at any point of time during the calendar year	Value of sale which FII/SA can make without losing its investment limits	Cumulative sale by the FII/SA during the calendar year	Value of sale which can be further made by FII/SA without losing limit
1 (On Jan 07, 2012)	1000	0	1000	1000	500	0	500
2	0	500	500	1000	500	500	0
3	6000	0	6500	6500	3250	500	2750
4	1000	0	7500	7500	3750	500	3250
5	0	3000	4500	7500	3750	3500	250
6	600	0	5100	7500	3750	3500	250
7	5000	0	10100	10100	5050	3500	1550
8	0	1550	8550	10100	5050	5050	0
9	450	0	9000	10100	5050	5050	0
10	1100	0	10100	10100	5050	5050	0

All figures in INR cr

 5. From January 01, 2014, the re-investment facility as indicated in the SEBI circular CIR/IMD/FIIC/22/2012 dated November 07, 2012 would be available during each calendar year to those FIIs which hold debt investments as on December 31 of the previous calendar year.

6. In respect of those FIIs which do not hold any debt investments as on December 31 of the previous calendar year, the re-investment facility given at Para 3 of this circular would be available during each calendar year.

7. It is further clarified that the re-investment facility for those FIIs/ sub-accounts having debt limit prior to January 03, 2012, will remain available till December 31, 2013 in terms of the SEBI circular dated January 03, 2012.

8. The re-investment period, i.e. 5 working days for Government Debt and 15 working days for Corporate Debt shall remain the same as per the SEBI Circular CIR/IMD/FIIC/18/2010 dated November 26, 2010.

This circular shall come into effect immediately.

This circular is issued in exercise of powers conferred under SEBI Section 11 (1) of the Securities and Exchange Board of India Act, 1992, to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.

A copy of this circular is available at the web page “F.I.I.” on our website www.sebi.gov.in. The custodians are requested to bring the contents of this circular to the notice of their FII clients.

Click here to download the complete text of the above Circular in PDF Format.

Source: Securities and Exchange Board of India.

Debt Allocation Mechanism for FII

Debt Allocation Mechanism for FII

CIRCULAR, CIR/IMD/FIIC/ 22/2012, dated November 07, 2012

To

All Foreign Institutional Investors

through their designated Custodians of Securities

1. SEBI  vide  circular  CIR/IMD/FIIC/1/2012  dated  January  03,  2012  had  provided  the  facility of  re-investment  up  to  two  years  from  the  date  of  the  circular  or  to  the  extent  of  twice  the size  of  the  debt  portfolio,  to  those  FIIs  and  sub-accounts  that  had  already  acquired  limits and  /or  invested  in  debt  in  the  manner  prescribed  in  the  said  circular.  With  a  view  to provide  operational  flexibility,  beginning  January  01,  2014,  it  has  been  decided  that  the FIIs/  Sub-Accounts  can  re-invest  during  each  calendar  year  to  the  extent  of 50%  of  their debt holdings at the end of the previous calendar year.

2. In partial modification to para 6.1 of circular CIR/IMD/FIIC/18 /2010 dated November 26, 2010, it has been decided that the time period for utilization of the Government debt limits (for both old and long term limits) allocated through bidding process shall be 30 days while the time period for utilization of the corporate debt limits (for both old and long term infra limits) allocated through bidding process shall be 60 days.

3. Further, in partial modification to para 4 of circular CIR/ IMD/ FII&C/ 15/ 2012 dated June 26,  2012,  it  has  been  decided  that  FII/sub-accounts  may  avail  limits  in  the  Corporate Debt Long  Term  Infra  category  without  obtaining  SEBI  approval  till  the  overall  FII investments reaches  90%  (ninety  percent),  after  which  the  auction  mechanism  shall  be initiated  for allocation of remaining limits. SEBI will put in place a mechanism to monitor the utilization of the limit.

This  circular  is  issued  in  exercise  of  powers  conferred  under  SEBI  Section  11  (1)  of  the  Securities and  Exchange  Board  of  India  Act,  1992,  to  protect  the  interests  of  investors  in securities and to promote the development of, and to regulate the securities market.

A copy of this circular is available at the web page ˝F.I.I.”  on our website www.sebi.gov.in.  The custodians are requested to bring the contents of this circular to the notice of their FII clients.

Click here to download the complete text of the above Circular in PDF Format- CIRCULAR, CIR/IMD/FIIC/ 22/2012, dated November 07, 2012.

Source: Securities and Exchange Board of India.

System for Making Application to Public issue of Debt Securities

CIRCULAR, CIR. /IMD/DF-1/20/2012 dated July 27, 2012

To

All Recognized Stock Exchanges

All Registered Merchant Bankers

All Registered Registrars to an Issue

All Registered Bankers to an Issue

All Depositories

1. Regulation 10 of the SEBI (Issue and Listing of Debt Securities) Regulations, 2008 (the “SEBI Debt Regulations”) provides that:

“An issuer proposing to issue debt securities to the public through the on-line system of the designated stock exchange shall comply with the relevant applicable requirements as may be specified by the Board.”

2. Regulation 31(2) of SEBI (Issue and Listing of Debt Securities) Regulations, 2008 provides that:-

“In particular, and without prejudice to the generality of the foregoing power and provisions of these regulations, such orders or circulars may provide for all or any of the following matters, namely:

Electronic issuances and other issue procedures including the procedure for price discovery….”

3. In view of the above, in order to facilitate a system for making online applications for public issue of debt securities and to reduce the timelines of the issue process for public issue of debt securities, it has been decided to:

a. Extend ASBA facility to public issues of debt securities; and

b. Provide option for subscribing to debt securities through an online internet interface with a facility to make online payment.

c. Apply the timelines for the issue process as provided in SEBI Circular CIR/CFD/DIL/1/2011 dated April 29, 2011 or as notified by SEBI from time to time.

4. The detailed procedure for providing the above facilities is laid out in Annexure to this circular. The circular shall be applicable with immediate subject to putting in place necessary systems and infrastructure by the stock exchanges.

5. Recognized Stock Exchanges are directed to:

a. Comply with the conditions laid down in this circular

b. Put in place necessary systems and infrastructure for implementation of this circular.

c. Make consequential changes, if any, to the bye-laws of the Exchange as may be applicable and necessary.

d. Communicate to member brokers/ sub-brokers and create awareness amongst them about their roles and responsibilities in such issues.

6. Depositories, Merchant Bankers and Registrars are directed to:

a. Comply with the conditions laid down in this circular

b. Put in place necessary systems and infrastructure for implementation of this circular.

c. Create awareness among issuers and investors about the various modes available for making applications

7. This circular is issued in exercise of powers conferred under Section 11(1) of the Securities and Exchange Board of India Act, 1992 read with Regulation 31(2) of SEBI (Issue and Listing of Debt Securities) Regulations, 2008.

8. This circular is available on SEBI website at www.sebi.gov.in under the category “Legal Framework” and under the drop down “Corp Debt Market”.

Yours faithfully,

Maninder Cheema

Deputy General Manager

+91-22-2644-9754

maninderc@sebi.gov.in

Annexure

Click here to download the complete text of the above Circular in PDF Format- System for Making Application to Public Issue of Debt Securities- Jul 27, 2012.

Source: Securities and Exchange Board of India.

Contents of Application Form and Abridged Prospectus for Public Issue of Debt Securities

CIRCULAR, CIR/IMD/DF-1/19/2012, dated July 25, 2012

All Registered Merchant Bankers

All Recognized Stock Exchanges

Background

1. SEBI had notified SEBI (Issue and Listing of Debt Securities) Regulations in 2008 specifying norms for public issue of debt securities and privately placed listed debt securities.

2. With respect to public issue of debt securities, there is currently no specified standard format for the Application Form and Abridged Prospectus. This has resulted in different application forms and abridged prospectus being used in public issues of debt securities.

3. In order to standardize the Application Form and Abridged Prospectus for public issue of debt securities, the existing forms and abridged prospectus were discussed and deliberated upon with market participants. Based on the discussions, the structure, design, format, contents and organization of information in the Application Form and Abridged Prospectus have been standardized and made uniform for public issues of debt securities.

Application Form

4. The following shall be applicable with respect to the application form to be filled up by the investor:

a)      All Application forms shall be printed in A4 size sheet. The illustrative format of Application Form that shall be used for Resident and Non-Resident Investors (NRI), are placed at Annexure A and B respectively. It may be noted that certain sections in the form are filled only for illustrative purposes.

b)      No change shall be carried out in spacing, placement or in data fields in the Application Form except for the following:

i. For issues offered only in dematerialized form, the sections pertaining to physical applications may be removed.

ii. Under Point No. 5 in application form, the number of columns for providing different series details is illustrative and may vary depending on the terms of the issue.

iii. Investor Categories and sub-categories may vary depending on the issue.

iv. Details to be provided under issue structure may vary depending on the terms of the issue.

v. KYC documents required may vary depending on the terms of the issue.

vi. The declaration pertaining to application in physical form may be removed if the issue is offered only in dematerialized form.

c)      In case the issue is not offered to NRI investors, the NRI specific form may not be printed.

Abridged Prospectus

5. The following shall be applicable with respect to the abridged prospectus annexed to the application form:

a)      The abridged prospectus shall be printed in A4 size sheets. The information shall be provided under the abridged prospectus as given at Annexure-C hereto.

b)      The Abridged Prospectus shall be printed:

i. In Times New Roman font,

ii. in a font size of not less than 10,

iii. with a line spacing not less than 1.00 lines

iv. and normal character spacing with 100% scale and no condensation.

c)      A larger font size may be used, if required, for different heads of information. All major heads shall be in uppercase and bold and in boxes. The first level subheads shall be in bold and in boxes. The other levels of sub-heads shall be bold and underlined.

d)     The numbering shall be either continuous or with different types of numbering for different heads/ sub-heads.

e)      The application form shall be so positioned that on the tearing-off of the application form, no part of the information given in the abridged prospectus is mutilated.

f)       The order of the contents in the abridged prospectus shall not be changed.

g)      Tabular formats and pointers may be used wherever possible for efficient understanding. Instructions for filling up the form, payment instructions and risk factors shall be in pointers and every pointer shall be in a new line.

h)      The top of every page in the abridged prospectus shall have a colored strap in bold letters incorporating the statement

“IN THE NATURE OF FORM 2A – MEMORANDUM CONTAINING SALIENT FEATURES OF THE PROSPECTUS”

i)        Under the sections ‘any other information’, any information which is important for the investor but has not been included in the other heads may be included.

j)        Risk factors shall be so provided that they convey the risks associated with the issue briefly.

k)      A reference may be made to the prospectus wherever necessary.

6. The issuer and all the concerned intermediaries are directed to comply with the instructions contained in this circular effective from 30 days to the date of this circular.

7. This circular is issued in exercise of powers conferred under Section 11(1) and section 11A of the Securities and Exchange Board of India Act, 1992 read with Regulation 31(1) of SEBI (Issue and Listing of Debt Securities) Regulations, 2008.

8. This circular is available on SEBI website at http://www.sebi.gov.in/ under the category “Legal Framework” and “Corp Debt Market”.

Yours faithfully,

Maninder Cheema

Deputy General Manager

Investment Management Department

Tel No.022-26449754

Email id – maninderc@sebi.gov.in

.

.

.

.

Click here to download the complete text of the above Circular in PDF Format- CIRCULAR, CIR/IMD/DF-1/19/2012, dated July 25, 2012.

Source: Securities and Exchange Board of India.