The International Financial Services Centres Authority (IFSCA) has released a consultation paper to gather feedback on a proposed circular regarding the listing of Commercial Papers (CPs) and Certificates of Deposit (CDs) on recognized stock exchanges within the International Financial Services Centre (IFSC). The paper outlines the global market overview of CPs and CDs, noting the significant size and structure differences across jurisdictions like the US, Europe, and Japan. The primary issuers of these instruments are financial institutions, with banks being the largest issuers. The proposal aims to introduce new products to attract a broader investor base, including foreign investors, thereby enhancing the capital market ecosystem in the IFSC. The listing would also bring about secondary market trading, increased transparency, and regulatory oversight, which are expected to boost investor confidence and market participation. The IFSCA has invited comments and suggestions from the public and stakeholders on this draft circular by September 17, 2024, to refine and finalize the regulations. The paper highlights the necessity of regulatory compliance, including initial and continuous disclosure requirements, to ensure a transparent and efficient market for these financial instruments.
International Financial Services Centres Authority
CONSULTATION PAPER
Listing of Commercial Paper (CP) and Certificates of Deposit (CD) on the recognized
stock exchanges in the IFSC
Dated: 02/09/2024
A. Objective
1. The objective of this consultation paper is to seek comments and suggestions from the public and stakeholders on the proposed circular on listing of commercial paper (CP) and certificates of deposit (CD) on the recognised stock exchanges in the IFSC.
B. Global Overview of CPs and CDs1
Size of CPs and CDs Market
2. The size and structure of CP and CD markets vary significantly across jurisdictions:
a. US market is the largest with a total of USD 4.7 trillion outstanding as of the end of March 2023;
b. Within Europe, there is no single market for CP or CD, but rather a number of different segments across issuer domicile and currency as well as two international markets.
i. The London-based Euro Commercial Paper (ECP) market is the largest, estimated at around USD 1 trillion outstanding as of March 2021, around 48% of which is denominated in US dollars and 28% in Euros.
ii. The Negotiable European (NEU) CP market, based in Paris, is the second largest market in Europe with USD 315 billion outstanding as of end-March 2023, 85% of which is Euro-denominated.
c. The Japanese market has a total of USD 380 billion outstanding, and all issuance is JPY-denominated.
Issuers
3. The largest CP, and the sole CD issuers are banks. In the US CP market, as of Q1 2023 just over half of CP outstanding is issued by financial issuers, including domestic and foreign issuers such as US subsidiaries or branches of Canadian, European and Japanese banks. CD issuers include domestic banks and US subsidiaries or branches of foreign banks.
Non-financial corporations, local governments, and public sector agencies issue CP to finance their working capital. Non-financial corporations represent a variety of sectors such as oil and gas, pharmaceuticals, technology, communications, utilities, and consumer sectors; utility firms are typically the largest issuers of CP in European markets.
Key characteristics of CP and negotiable CD issuers across markets are defined in the table given below.
| Market | Issuers |
| UK | Euro CPs are primarily issued by foreign banks who issue sterling CP and CD to fund their sterling assets at UK subsidiaries and branches. |
| Japan | Financial corporates account for two-thirds of CP issuance, this issuance is primarily from finance subsidiaries of non-financial corporates and leasing companies. The remaining third is issued by non-financial corporations such as resource and material industries.
CD issuance is from deposit taking banks, including city banks, local banks and trust banks. Both CP and CD issuance is primarily denominated in Japanese Yen. |
| US | 52% of the total CP outstanding is by financial issuers, both domestic and foreign, 25% of total outstanding is ABCP, and 23% of total outstanding is by non-financial corporations as of Q1 2023. CD is issued by depository institutions, both domestic banks and US subsidiaries or branches of foreign banks. |
Investors
4. The investors are typically financial institutions such as Money Market Funds (MMFs), pension funds and insurance companies, as well as cash rich non-financial corporations. In the US, financial firms (including banks, insurance companies, security brokers and dealers, and government-sponsored enterprises) account for the largest share of CP holdings (61% of the total outstanding), while non-financial firms such as cash-rich corporations are the largest CD investors at 49% of outstanding (as of end-Q1 2023). US MMFs’ share of CP investments has fallen from ~25% of CP outstanding at end-2020 to ~18% at end-Q1 2023.32 US MMFs’ share of CD outstanding has remained fairly stable at ~4-6% of the total over the period.
5. The demand for CP and CD instruments comes from investors looking for short-term, credit-sensitive assets.
| Jurisdiction | Euro Area2 | Japan | US | |||
| Investors | CD & CP | CP | CD | CP | CD | |
| MFF | 71% | 23% | 0% | 18% | 6% | |
| Banks and Other financial institutions | 23% | 73% | 22% | 61% | 35% | |
| Non-financial firms | 4% | 4% | 47% | 15% | 49% | |
| State & local govt. | – | – | 30% | 6% | 10% | |
C. Background
6. IFSCA has received representations regarding introduction of new products on the recognised stock exchanges in the IFSC. Accordingly, the proposed new IFSCA (Listing) Regulations, 2024 (“Listing Regulations”) provide the regulatory framework for listing of CPs and CDs on the recognised stock exchanges in the IFSC (regulations 80 & 81).
2. Further, Regulation 130(2) of the Listing Regulations provide that the requirements under regulations 80, 81, 82 and 126 may be specified after public consultation and approval in a meeting of the Authority.
3. The listing of CPs and CDs on the exchanges would inter alia entail the following benefits:
a) Products
The introduction of new products will help in attracting investors, including foreign investors and NRIs to participate in the IFSC. CPs and CDs will provide opportunity to the investors to invest in short term instruments (less than a year) in the IFSC. This will contribute towards development of the capital market ecosystem in the IFSC.
b) Wider Investor Base
The listing of CPs and CDs on the stock exchanges in the IFSC will provide access to a larger and more diverse investor base. This broader reach can lead to greater demand for these products, potentially lowering the cost of borrowing for the issuer.
c) Secondary Market
The stock exchange platform will help in secondary market trading of CPs and CDs.
d) Increased Transparency
Listing of CPs and CDs on the stock exchange would enhance transparency, as issuers will be required to comply with the initial and continuous disclosure requirements specified by IFSCA. The increased transparency will build credibility and trust among investors.
d) Regulatory Oversight
Listing of CPs and CDs in the IFSC will be under the regulatory oversight of IFSCA, providing additional protection to investors. This can lead to higher investor confidence and greater market participation.
9. Globally, the international stock exchanges in some jurisdictions permit listing and trading of CPs and CDs. Further, SEBI has also permitted listing of Commercial Paper on the stock exchanges in India.
4. The objective of the proposed circular is to specify regulatory requirements for facilitating issuers to issue CPs and CDs in a more efficient and transparent manner ensuring that adequate material information is made available to the investors for making informed decision.
D. Public Comments
11. Comments and suggestions from public and stakeholder are invited on the draft circular on listing of Commercial Paper and Certificates of Deposit on the recognized stock exchange in IFSC placed at Annexure 1.
12. Comments may be sent by email to Mr. Abhineet Panwar, Assistant Manager, IFSCA at [email protected] with a copy to Mr. Shubham Goyal, Assistant General Manager at [email protected] and Mr. Arjun Prasad, General Manager, IFSCA at [email protected] latest by September 17, 2024.
13. The comments may be provided in the following format (MS Word or MS Excel only):
Name and Details of the Person / Entity
[Organisation name (if applicable), Contact No., Email address]
| Sr. No. | Paragraph No. | Comments/Suggestions | Detailed rationale | Other supporting Information |
Annexure 1
DRAFT CIRCULAR
F. No. ………………………………
Sept____ , 2024
To
All Market Infrastructure Institutions in the IFSC
All IFSC Banking Units in the IFSC
Madam/Sir,
Sub: Listing of Commercial Paper and Certificates of Deposit on the recognised stock exchanges in the IFSC
1. The IFSCA (Listing) Regulations, 2024 (“Listing Regulations”) provide the regulatory framework for listing of securities and other permitted financial products on the recognised stock exchanges in the IFSC. Regulations 80 and 81 of the Listing Regulations enable listing of Commercial Paper and Certificates of Deposit respectively in such manner and subject to such conditions as may be specified by IFSCA (“the Authority”).
2. Accordingly, listing of Commercial Paper and Certificates of Deposit on the recognised stock exchanges in the IFSC shall be in accordance with the requirements specified in this circular.
A. Commercial Paper
Eligible Issuers
3. An issuer meeting the eligibility criteria provided under Chapter II of the IFSCA (Listing) Regulations, 2024 shall be eligible to list commercial paper (“CP”) on a recognised stock exchange in the IFSC:
Provided that an issuer being a person resident in India3 is not eligible to issue a CP in terms of the framework on ‘External Commercial Borrowings’ specified by Reserve Bank of India under the provisions of the Foreign Exchange Management Act, 1999.
Conditions
4. Depository: The issuer shall ensure that the CP listed on a recognised stock exchange in the IFSC is in demat form and held with a recognised depository in the IFSC or an international central securities depository.
5. Maturity: The issuer shall ensure that the maturity of the CP proposed to be listed on a recognised stock exchange in the IFSC is not less than seven days and not more than one year.
6. Currency: The issuer shall ensure that the CP is issued in a currency as permitted under regulation 8 of the Listing Regulations.
7. Other conditions:
a. CP shall be issued at a discount to face value.
b. The issuance of a CP with options (call/put) is not permitted.
c. The issuance of a CP is not permitted to be underwritten or co-accepted.
Eligible Investors
8. The issuer may issue a CP to a person resident in India or to a person resident outside India4:
Provided that such issuance shall be in compliance with the applicable provisions of the Foreign Exchange Management Act, 1999 and Rules and Regulations made thereunder.
Listing Application
9. An issuer desirous of listing its CP on a recognised stock exchange shall file the listing application along with a copy of offer document or information memorandum, as applicable, with the recognised stock exchange in accordance with the requirements
specified by the exchange. The application shall be accompanied with regulatory fee of USD One thousand. The regulatory fees received by the stock exchange shall be remitted to the Authority.
Explanation: The issuer may choose to list CP as a standalone issue or through series of issuances. The issuer shall be required to file an information document at the time of listing of CP at every issue along with the said regulatory fee.
Initial Disclosures
10. The offer document or information memorandum, as applicable, shall contain all material disclosures which are true, correct and adequate to enable the investors to take an informed investment decision.
11. The issuer shall ensure that the following disclosures are made in the offer document or information memorandum:
A. Issuer Disclosures:
i. General information
ii. Risk Factors
iii. Information about the issuer
iv. Business description
v. Organisational structure
vi. Management
vii. Major / controlling shareholders
viii. Audited Financial Statements
ix. Details of borrowings of the company
x. Statutory auditor
xi. Material outstanding litigations
xii. Defaults
Explanation: The issuer shall provide details of all material default(s) and/ or delay in payments of interest and principal in the past 5 financial years.
xiii. Other material events
Explanation: The issuer shall provide details of all material events or developments that may have implications on the financials or credit quality which may affect the issue or the investor’s decision to invest in the CP.
B. Issue related disclosures:
i. Terms relating to issue of CP
ii. Use of proceeds
iii. List of exchanges where the CP is listed or proposed to be listed
iv. Details of credit rating (if obtained)
v. CP borrowing limit along with supporting board resolution
vi. Details of all CPs issued during the last 12 months
vii. Details of credit support/ enhancement (if any)
Continuous Disclosures
12. The issuer having outstanding listed CP shall disclose the audited financial statements for the full financial year to the recognised stock exchange(s) immediately after the approval of its board of directors, but in any event not later than three months of the end of financial year:
Explanation: The issuer shall prepare its financial statements in accordance with IFRS or US GAAP or Ind AS or other accounting standards as applicable in its home jurisdiction:
Provided that an issuer preparing financial statements as per the accounting standards of its home jurisdiction (other than IFRS, US GAAP and Ind AS) shall be required to reconcile the same with IFRS.
13. The issuer shall immediately disclose to the recognised stock exchange(s) all events which are material or price sensitive.
14. The issuer shall immediately disclose to the recognised stock exchange(s) the following events:
a. Details such as expected default/ delay/ default in timely fulfilment of its payment obligations for any of the debt instruments issued by the issuer; and
b. Any material event or development or action that may adversely affect fulfilment of its payment obligations in respect of the CP.
Explanation: For the purpose of this circular, immediately shall mean promptly but not later than twenty four hours.
15. The issuer shall immediately disclose to the recognised stock exchange any revision in the credit rating of the CP.
Buyback
16. The issuer shall ensure that any buyback of a CP shall be in compliance with the following requirements:
a. The buyback of a CP, in full or part, shall be at the prevailing market price.
b. The buyback offer shall be extended to all investors in the CP issue. The terms of the buyback should be identical for all investors in the issue.
c. The buyback offer may not be made before 30 days from the date of issue.
d. The CP bought back shall stand extinguished.
B. Certificates of Deposit
Eligible Issuers
17. An IFSC Banking Unit licensed by the Authority shall be eligible to list its CD on a recognised stock exchange in the IFSC. The issuance of CD shall be in accordance with the IFSCA (Banking) Regulations, 2020 and the IFSCA Banking Handbook issued by the Authority from time to time.
Conditions
18. Depository: The issuer shall ensure that the CD listed on a recognised stock exchange in the IFSC is in demat form and held with a recognised depository in the IFSC or an international central securities depository.
Listing Application
19. An issuer desirous of listing its CD on a recognised stock exchange shall file the listing application along with a copy of the offer document or information memorandum, as applicable, with the recognised stock exchange in accordance with the requirements specified by the exchange. The application shall be accompanied with regulatory fee of USD One thousand. The regulatory fees received by the stock exchange shall be remitted to the Authority.
Explanation: The issuer may choose to list CD as a standalone issue or through series of issuances. The issuer shall be required to file an information document at the time of listing of CD at every issue along with the said regulatory fee.
Initial Disclosures
20. The offer document or information memorandum, as applicable, shall contain all material disclosures which are true, correct and adequate to enable the investors to take an informed investment decision.
21. The issuer shall ensure that the following disclosures are made in the offer document or information memorandum:
A. Issuer Disclosures:
i. General information
ii. A brief description of the parent bank and the IBU’s business activities.
iii. Information about the statutory Auditor
iv. Defaults
Explanation: The issuer shall provide details of all material default(s) and/ or delay in payments of interest and principal in the past 5 financial years.
v. Other material events
Explanation: The issuer shall provide details of all material events or developments that may have implications on the financials or credit quality which may affect the issue or the investor’s decision to invest in the CD.
B. Issue related disclosures:
i. Terms relating to issue of CD
ii. Use of proceeds
iii. List of exchanges where the CD is listed or proposed to be listed
iv. Details of all Certificates of Deposit issued during the last 12 months
Continuous Disclosures
22. The issuer shall immediately disclose to the recognised stock exchange(s) the following events:
a. Details such as expected default/ delay/ default in timely fulfilment of its payment obligations of any CD or any of the debt instrument issued by the issuer; and
b. Any material event or development or action that may adversely affect fulfilment of its payment obligations in respects of the CD.
C. Miscellaneous
23. The recognised stock exchanges shall put in place necessary systems and procedures for listing and trading of CPs and CDs.
12. The recognised depository shall put in place necessary systems and procedures for dematerialisation of CPs and CDs.
The circular is issued in exercise of powers conferred by section 12 of the International Financial Services Centres Authority Act, 2019 and regulation 130 of the IFSCA (Listing) Regulations, 2024 to develop and regulate the financial products, financial services and financial institutions in the International Financial Services Centres.
A copy of the circular is available on the website at www.ifsca.gov.in
Yours Faithfully,
Arjun Prasad
