Operational framework for defaulted debt securities under SEBI

Operational Framework Introduction

Introduced by SEBI Circular dated 23.06.2020

Purpose of the Operational Framework –

It is a framework for transaction in defaulted debt securities post maturity date/redemption date under provisions of SEBI (Issue and Listing of Debt Securities) Regulations, 2008

Effective date of the circular is 01.07.2020

Detailed Operational Framework

As we know the Stock exchanges suspend trading/ reporting of trade on debt securities before the redemption date. Depositories impose restrictions on off market transfers on redemption date that restricts transfer on and after the redemption date.

By considering the above facts, it is proposed to allow these restrictions be lifted on defaulted debt securities after following the procedure given as follow-

Step-1 Procedure under Operational framework

Temporary restrictions on transactions in debt securities

• Stock Exchanges shall not allow any transactions in defaulted debt securities before the 2 working days prior to their maturity/ redemption date.
• On maturity of these securities depositories shall temporary restrict transactions in such debt securities from such redemption till the it’s status of payment determined.

Step-2 Intimation on status of payment

• Issuer shall intimate to the stock exchange, & other intermediaries the status of payment of debt securities within 1 working day of payment/redemption date.
• Provided date defaulted securities on which default occurred before circular, the issuer shall intimate the status of payment within 5 working days from the of this circular i.e 23.06.2020
• Working day shall be the working day of the stock exchange.

Step-3 Role of Debenture Trustee

Independent Assessment : Where issuer fails to intimate the status of payment then debenture trustee seeks the status of payment and arrange a assessment of the issuer

Pre-authorization: At the time of executing DTD, issuer shall provide to its bank pre-authorization to DT to seek the debenture redemption related information from the issuer’s bank.

• Issuer shall inform the DTs of any changes in the banks details within 1 working day from such changes
• Issuer shall provided the such pre-authorization to DTs within 60 days from the date of Circular i.e 23.06.2020

Intimate Stock Exchange: Based on assessment the DTs shall intimate to Stock Exchange the status of payment within 9 Working days from the date of redemption.

What, if intimation not received: In case intimation of status of payment not received by SE & depository then such continue to be restricted.

Step-4 Default in the payment of redemption amount-

• Within 2 working days from the date of intimation from issuer or DTs that issuer has defaulted on its payment obligations then depository in co-ordination with Stock exchange shall-

1. Update the ISIN Master file, &

2. Lift the restriction on transactions of such debt securities.

3. Information regarding this shall be disseminated immediately on website of both depositories and stock exchange.

• Depository shall also flag in corporate bond database such debt securities as “ISIN-defaulted in redemption” and its description shall mandatorily reflect that there was default in payment of redemption amount the connected debt securities.

Step-5 Reporting of trade in defaulted debt securities on stock Exchange platform

• Upon intimation by depositories that transactions have been permitted in the defaulted debt securities, stock exchange shall simultaneously but not later than 2 working days of default intimation from Issuer/DTs, permit reporting over the counter trade in concerned defaulted debt securities on its reporting on its reporting platform.
• At the time of reporting of such trades, stock exchanges shall ensure that a pop-up window is flashed, specifying that the reported trade is in a defaulted debt security.

The trade repository shall flag such trade as “Trades in ISIN-defaulted debt security.

The trade repository shall flag such trades as “Trades in ISIN-defaulted in redemption.”

Step- 6 Intimation of transactions in defaulted debt securities

The Depositories shall send intimation to both parties to the transaction that it is “Transaction in ISIN-defaulted in redemption” immediately.

Step- 7 Account Statement

While sending the periodic account statement to the Demat account holders, including Consolidated Account statement (CAS), Depositories shall highlight in such statements that a particular debt securities is an “ISIN – defaulted in redemption”.

Step- 8 Continuous assessment of default status

• The issuer shall inform to SEs, DP, DTs latest by 2^nd working day of April of each financial year on the updated status of payment of the debt securities.
  • DTs does not intimate the status of payment of debt securities to SEs and depository within the stipulated    timeline, transaction in such shall be restricted from 8^th working days of april of that financial year, until any further intimation is received

• In case the Issuer fails to intimate the updated status of payment of the concerned debt securities, within the stipulated timelines, the Debenture Trustee(s) shall carry independent assessment and intimate the status of payment of debt securities to the Stock Exchange and Depositories within 7th working day of April of each Financial Year.

  • In case of any developments that impact the status of default of the debt securities (including restructuring of debt securities, IBC proceedings, its repayment, etc.), the issuer/debenture trustee shall intimate the stock exchange and depositories within 1 working day of such development.