SEBI Sets Framework For Upfront Collection Of Funds
The Securities and Exchange Board of India (SEBI) notified a framework for the upfront collection of funds from eligible issuers of debt securities, according to a media report on Thursday. The set guideline is to build the Settlement Guarantee Fund of the Limited Purpose Clearing Corporation (LPCC).
The new framework will come into force from 1 May 2023, SEBI said.
According to SEBI, the LPCC will be responsible for informing all eligible users as per its risk management policy, as it is an entity established to undertake the activity of clearing and settlement of repurchase agreement transactions.
The new framework permits the stock exchanges to collect an amount of 0.5 basis points of the issuance value, debt securities per annum, based on its maturity placing them in an escrow account before the allotment of the debt securities. An amount applicable on a public issue or private placement of debt securities.
Subsequently, the stock exchanges would transfer the collected amounts to the LPCC bank account within one working day of the amount receipt and acknowledge the LPCC about the deposited amount. Following this stock exchanges will disclose the details of the amount on their official websites, with LPCC further illustrating the calculation of the amounts to be contributed by the eligible issuers.
SEBI claims a well-functioning repo market leads to the development of the market’s debt securities, giving a boost to the liquidity of the underlying security debt and allowing market participants to monetize their debt holdings without selling the underlying, thus enabling their temporary need for funds.
It added that the developed active repo market in debt securities may also benefit the issuers as the enhanced liquidity may positively impact the yield, resulting in reduced costs of raising funds for the issuers in the primary market.
