Sebi Allows Operational Framework For Defaulted Debt Securities

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Sebi Allows Operational Framework For Defaulted Debt Securities
PTI - 23 June 2020

Markets regulator Sebi on Tuesday allowed transactions in defaulted debt securities and put in place operational framework for such transactions.

This comes after the regulator received representations from market participants and investors to allow transactions in debt securities where redemption amount has not been paid on maturity or redemption date.

Consequently, Sebi has decided to introduce an operational framework for transactions in defaulted debt securities and also prescribed the obligations of issuers, debentures trustees, stock exchanges and depositories to allow transactions while permitting such transactions.

The regulator has asked exchanges, depositories and debenture trustees to put in place necessary systems and infrastructure for implementation of this framework by June 29 and the new guidelines would come into force from July 1.

As per existing practice, the exchanges suspend trading or reporting of trades on debt securities before the redemption date. Further, depositories impose restriction on off-market transfers on redemption date that restricts transfers on and after the redemption date.

It has been proposed to allow these restrictions be lifted on defaulted debt securities.

With regard to default in payment of redemption amount and resumption of transaction on defaulted debt securities, Sebi said within 2 working days from the date of intimation from issuer or debenture trustees that issuer has defaulted on its payment obligations, the depositories in co-ordination with exchanges will update the ISIN master file and lift restrictions on transactions in such debt securities.

Further, information regarding resumption of transactions will be disseminated immediately on the websites of both depositories and stock exchanges.

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