N Sundaresha Subramanian

Mumbai: The market regulator on Thursday paved the way for trading of simpler debt products even as the banking regulator, too, slammed the brakes on the ultra-complex credit derivatives.

The Securities and Exchange Board of India (Sebi) laid down the ground rules for a non-starter debt market by notifying separate regulations for issue and listing of debt securities and securitised debt.

The first order dealt with issue and listing of debt securities.

“The Regulations provide for rationalised disclosure requirements for public issues and flexibility to issuers to structure their instruments and decide on the mode of offering, without diluting the areas of regulatory concern,” the regulator said.

In case of public issues, disclosures about the issuer and the instrument, such as the nature of instrument, rating rationale, face value and issue size, etc would be necessary, over and above those specified in Schedule II of the Companies Act, 1956.

Sebi has done away with the requirement of filing of draft offer documents for observations. It has placed emphasis on due diligence, adequate disclosures and credit rating. Specific regulations have been prescribed for certifications to be filed by merchant bankers in this regard.

The second order dealt with the public offer and listing of securitised debt instruments.

“The new rules have been formulated taking into account the market needs, cost of the transactions, competition policy, the professional expertise of credit rating agencies, disclosures and obligations of the parties involved in the transaction and the interest of investors in such instruments,” Sebi said.

Accordingly, the issuer of securitised debt shall be a special purpose entity in the form of a trust. The trustees thereof will require registration from Sebi and the registration granted to a trustee shall be permanent, subject to compliance with existent legal provisions and regulations, and payment of appropriate fees. Rating from at least two credit rating agencies is mandatory and the ratings shall be disclosed in the offer documents.

The instrument shall be in dematerialised form.

The draft offer document shall be filed with Sebi at least 15 days before opening of the issue. In case of public issuances, listing will be mandatory.

The instruments issued on a private placement basis may also be listed subject to the compliance of simplified provisions of the regulations.

The securitised debt instruments issued to the public or listed on a recognised stock exchange in accordance with these regulations shall be freely transferable.

In a separate order, Sebi also provided for a comprehensive regulation that will apply to all intermediaries.

The order lays down the common requirements, such as grant of registration, general obligations, common code of conduct, common procedure for action in case of default and miscellaneous provisions.

While the registration process for new applicants has been simplified, existing intermediaries may, within the prescribed time, file the disclosure in the specified form under the new rules.

Source : DNA