In October 2022, the Securities and Exchange Board of India (“SEBI”) introduced several amendments to various chapters of its Operational Circular for issue and listing of Non-convertible Securities, Securitised Debt Instruments, Security Receipts, Municipal Debt Securities and Commercial Paper, dated August 10, 2021 (“Operational Circular”), in response to certain representations received by it from various market participants. These modifications appear to be in line with SEBI’s continued efforts to improve the accessibility, fairness, and transparency of the debt securities market.

This note covers some of the key amendments introduced in the following chapters of the Operational Circular:

a. the Electronic Book Provider (“EBP”) platform (Chapter VI of the Operational Circular), amended by way of SEBI circular dated October 10, 2022[1];

b. the denomination of issuance and trading of non-convertible securities (Chapter V of the Operational Circular), amended by way of SEBI circular dated October 28, 2022[2]; and

c. specifications related to ISINs for debt securities (Chapter VIII of the Operational Circular), amended by way of SEBI circular dated October 31, 2022.[3]

I. Changes to the EBP platform:

Chapter VI of the Operational Circular has been amended in its entirety, with effect from January 01, 2023. The notable changes include:

a. The threshold for issuances of debt securities that must be carried out through the EBP platform has been reduced from INR 100 crore in a financial year to INR 50 crore. Issuers of debt securities on a private placement basis may continue to choose to access the EBP platform for issuances below this threshold. This change is in consonance with SEBI’s trend of reducing the threshold for applicability of the EBP platform and will improve compliance with regulation(s) and tradability of debt securities.

b. The size of the ‘green shoe option’ for oversubscription (if any) included in the issue shall, now, not exceed five times the base issue size. Prior to this amendment, for privately placed issuances, the issuer was only required to specify a range within which such green shoe option may be retained, with no specified limit.

c. To deal with the specific concerns on ‘fastest finger first’ allotment (based on time priority in bidding for issuances with fixed parameters) and to reduce instances of certain bidders not being allotted any portion of the issuance, despite having worked on the issuance pre-listing, etc., SEBI has introduced two key changes:

i. Issuers have been provided with the option to avail an ‘anchor portion’ for their issuances, and may select ‘anchor investors’ for the said portion, which shall be no more than 30 percent of the base issue size. However, no bidding for the anchor option shall take place on the EBP platform. Allowing an anchor option will ensure allotment to pre-identified investors, at least to the extent of 30 percent of the base issue size. The price of such anchor portion may either be based on the cut-off price or the face value of the security.

ii. Participants are not permitted to use any software(s), algorithm(s), bot(s), or other automation tool(s) that would give them an unfair advantage in placing their bids on the EBP platform. Participants will be required to give an undertaking to this effect to the EBP platform provider.

d. The amount that can be bid through an arranger has been increased to INR 100 crore, or 5 percent of the base issue size (whichever is lower), from the earlier limit of INR 15 crore.

e. Further, a penalty may be imposed on allottees and anchor investors for not fulfilling their respective pay-in obligation(s), and they may also be barred from accessing the bidding platform for 30 days from the date of such default. Similarly, an arranger may also be debarred for 7 days from the date of default committed by the client(s) of such arranger.

II. Changes to the face value of non-convertible securities:

Chapter V of the Operational Circular, vide SEBI circular dated October 28, 2022, has been amended, such that the face value of each debt security or non-convertible redeemable preference share issued on a private placement basis (unlisted or listed) has been reduced from INR 10 lakh to INR 1 lakh. SEBI has provided issuers, who have filed shelf placement memorandums that are valid as on January 01, 2023, with the option of issuing such non-convertible securities with a face value of either INR 1 lakh or INR 10 lakh at the time of raising funds through tranche placement memorandum(s). The reduction of the face value will improve access to the debt securities market and improve retail participation in the space.

III. Changes to specifications related to ISINs for debt securities:

SEBI, noting that capping the number of International Securities Identification Numbers (“ISINs”) has reduced fragmentation in the primary market and enhanced liquidity in the secondary market, has introduced the following changes with respect to ISINs for debt securities:

a. An issuer of debt securities shall now only be permitted to have 14 ISINs maturing in any financial year, with six additional ISINs available for the issuance of ‘capital gains tax debt securities’ by authorised issuers on a private placement basis, under Section 54EC of the Income Tax Act, 1961. Of these, only nine ISINs shall be permitted for ‘plain vanilla’ debt securities, whether secured or unsecured. However, if the total outstanding amount across such ISINs reaches INR 15,000 crore, then three additional ISINs may be permitted to mature. Similarly, only five ISINs maturing per financial year may be permitted for structured debt securities and market linked debt securities. Irrespective, nine ISINs maturing per financial year are permitted if an issuer issues only structured/ market linked debt securities.

b. The aforementioned limits shall be applicable to ISINs utilised for issuances of debt securities from April 1, 2023.

[1]     Circular No. SEBI/HO/DDHS/DDHS_Div1/P/CIR/2022/00139, titled “Review of provisions pertaining to Electronic Book Provider platform”.

[2]     Circular No. SEBI/HO/DDHS/P/CIR/2022/00144, titled “Reduction in denomination for debt securities and non-convertible redeemable preference shares”.

[3]     Circular No. SEBI/HO/DDHS/DDHS Div1/P/CIR/2022/147, titled “Review of provisions pertaining to specifications related to International Securities Identification Number (ISIN) for debt securities issued on private placement basis”.