Modifications to the provisions of the Master Circular for Issue and Listing of Non-convertible Securities, Securitised Debt Instruments, Security Receipts, Municipal Debt Securities and Commercial Paper

INTRODUCTION

The Securities and Exchange Board of India (“SEBI”) in exercise of its powers conferred under Section 11(1) of the Securities and Exchange Board of India Act, 1992 read with Regulation 55 (1) of the SEBI (Issue and Listing of Non-convertible Securities) Regulations, 2021, Regulation 29 of SEBI (Issue and Listing of Municipal Debt Securities) Regulations, 2015 and Regulation 48 of SEBI (Issue and Listing of Securitised Debt Instruments and Security Receipts) Regulations, 2008 has issued circular no. SEBI/HO/DDHS/POD1/P/CIR/2023/194 dated December 28, 2023 (“Circular”)ⁱ to modify certain provisions under Chapter XXI (Registration and Regulatory framework for Online Bond Platform Providers (“OBPPs”)) of the Master Circular (defined hereinbelow) for issue and listing of Non-convertible Securities, Securitised Debt Instruments, Security Receipts, Municipal Debt Securities and Commercial Paper dated July 07, 2023 (“Master Circular”)ⁱⁱ , with an aim to facilitate the ease of doing business for OBPPs.

THE FOLLOWING ARE THE KEY HIGHLIGHTS OF THE LLP RULE: -

1. Offerings by OBPPs
   
   Earlier Position:
   
   As per Clause 5.2 of the Master Circular, an entity acting as OBPPs on or prior to November 14, 2022, shall divest offerings other than the following products or securities or services on its online bond platform (“OBP”) or any other website/platform -
   
   
   1. Listed debt securities, listed municipal debt securities and listed securitised debt instruments;
   
   
   2. Debt securities, municipal debt securities and securitised debt instruments proposed to be listed through a public offering;
   
   
   3. Listed government securities, state development loans and treasury bills; and
   
   
   4. Listed sovereign gold bonds.
   
   Amended Position:
   
   Pursuant to the Circular, the above provision has been amended and substituted with a broader provision, through the inclusion of other products or securities or services that are regulated by a financial sector regulator viz. SEBI, Reserve Bank of India (“RBI”), Insurance Regulatory and Development Authority of India (“IRDAI”) or Home Pension Fund Regulatory and Development Authority (“PFRDA”). Such offerings can be offered either under a different tab on its OBP or on any other website/platform, and shall be governed by the directions of the respective financial sector regulator.


2. Restriction on products/ securities/ services offered by OBPP
   
   Earlier Position:
   
   As per Clause 5.3.4 of the Master Circular an OBPP shall divest itself of offerings of other products or securities or services.
   
   Amended Position:
   
   Pursuant to the changes under Clause 5.2 of the Master Circular vide the Circular, Clause 5.3.4 has been substituted to provide that OBPP entities shall divest itself of offerings of other products or securities or services not specifically permitted under the amended Clause 5.2.
   


3. Disclaimer to be provided by OBPPs
   
   Earlier Position:
   
   As per Clause 5.3.7 of the Master Circular, OBP or any other platform/ website of OBPPs having link to websites of its holding company, subsidiary or associate, undertaking any activity or offering products or securities or services that are regulated by other financial sector regulators shall put the following disclaimer in legible font – – “Name of the product is regulated by RBI / IRDAI / PFRDA”.
   
   Amended Position:
   
   Pursuant to the Circular, the said provision has been amended and substituted to add to the above provision that for OBPPs regulated by SEBI on its OBP or any other platform/ website, the relevant SEBI regulations as applicable to the product/ security/ service shall be applicable.
   


4. Agreement with sellers of offerings mentioned under Clause 5.2.1 to 5.2.4 of Chapter XXI
   
   Earlier Position:
   
   As per Clause 3.2 of Annex XXIA of the Master Circular, in cases where the OBPP entities allow third party sellers of debt securities to use the OBP to sell such securities, such entities shall enter into an agreement in writing with such sellers, prior to taking up the assignment of offering the securities on their OBP. Such agreement shall clearly set out the relationship and the mutual rights, liabilities and obligations of the assignment.
   
   Amended Position:
   
   The Circular has amended Clause 3.2 of Annex XXIA of the Master Circular to limit the above requirement to those instances where the OBPP entities allow third party sellers of products or securities or services as specified in Clause 5.2.1 to 5.2.4 of Chapter XXI. This provision was amended to modify the provision and make it consistent with newly substituted Clause 5.2 of the Circular.
   


5. Insertion of Clause 3.4.4 to Annex-XXIA of the Master Circular
   
   Clause 3.4.4 of Annex XXIA has been inserted vide the Circular, to provide that all orders with respect to other products or securities or services that are regulated by a financial sector regulators shall be in accordance with the applicable laws and regulations of the respective financial sector regulators.
   


6. Issue of order receipt, deal sheet and quote receipt in case of offerings under Clause 5.2.1 to 5.2.4 of Chapter XXI
   
   Earlier Position:
   
   As per Clause 3.6 of Annex XXIA of the Master Circular,
   1. Order receipt to investor on placement of order: Upon placement of an order by the investor, the OBBP entity shall issue an electronic order receipt which shall include date and time of order, details of counter parties involved, quantity and amount proposed to be transacted
   
   
   2. Deal Sheet to investor post execution of the order:Upon execution of the order, the OBBP entity shall forthwith issue a deal sheet to the investor for all transactions, stating all the relevant information regarding the transaction inclusive of date and time of placing of the order, date and time of settlement of the order, details of counter parties involved, quantity and amount transacted.
   
   
   3. Quote receipt to seller post execution of the order:OBPP entity, in case of third-party sale of debt products or securities or services on the OBP, shall issue without delay to the seller, a quote receipt which shall include date and time of quote, details of counter-parties involved, quantity and amount quoted.
   
   
   Amended Position:
   
   The Circular has amended Clause 3.6 of Annex XXIA of the Master Circular to limit the above requirement to those products or securities or services as specified in Clause 5.2.1 to 5.2.4 of Chapter XXI. This provision was amended to modify the provision and make it consistent with newly substituted Clause 5.2 of the Circular.
   


7. Advertisement code for OBPPs
   
   Earlier Position:
   
   Circular, OBPPs are required to attach with the advertisement, a standard warning in eligible font as follows – “Investments in debt securities are subject to risks. Read all the offer related documents carefully”, without any change in language.
   
   Amended Position:
   Pursuant to the Circular, the standard warning under Para 10 of Advertisement Code for OBPPs under Annex XXI C of the Master Circular has been modified as follows - “Investments in debt securities/ municipal debt securities/ securitised debt instruments are subject to risks including delay and/ or default in payment. Read all the offer related documents carefully”.
   

The Circular is a step ahead in SEBI’s role to protect the interest of investors in securities and to promote the development of, and to regulate the securities market in India. The proposed modifications aim to facilitate ease of doing business for OBPPs. The Circular, on one hand encompasses various aspects of regulation and support mechanisms tailored to the unique needs of OBPPs and on the other, safeguards the rights and interests of the securities’ buyers