SEBI's New Securitisation Rules: Key Investor Safeguards
The Securities and Exchange Board of India (SEBI) has proposed significant changes to the securitisation framework to bolster investor protection and streamline regulatory requirements. The proposal includes a minimum investment threshold, limitations on investor participation, mandatory dematerialisation, and liquidity safeguards. Public feedback is invited until November 16, 2024, as SEBI aims to build on its 2008 framework and the Reserve Bank of India’s (RBI) 2021 securitisation guidelines.
SEBI suggests setting a minimum “ticket size” of Rs 1 crore for investments in securitised debt instruments (SDIs), aiming to attract high-net-worth individuals and institutional investors who are well-equipped to assess the associated risks.
Private placements will have a cap of 200 investors. Any issuance seeking more investors must be reclassified as a public offer, ensuring that private offerings remain exclusive and compliant with public offer regulations.
For public offers, SEBI mandates an offer duration between three to ten days, along with aligned advertising guidelines to ensure transparent disclosures.
All securitised debt instruments must be dematerialised, moving entirely to electronic transactions. This shift enhances transparency, reduces fraud risk, and simplifies ownership tracking.
Originators are required to retain a minimum of 10% of the securitised asset pool to align their interests with investors; this is reduced to 5% for assets with shorter maturities. Additionally, a minimum holding period before securitisation ensures originators’ vested interest in the assets.
The optional clean-up call feature allows originators to repurchase up to 10% of securitised assets, offering flexibility to maintain asset quality as underlying values evolve.
SEBI mandates liquidity facilities to address cash flow timing issues, ensuring steady investor payouts, either managed by the originator or a third party.
Eligible assets are limited to listed debt securities, accepted trade receivables, rental incomes, and equipment leases. Single-asset securitisation is excluded to encourage diversification and reduce risks.
Originators must have a minimum of three years of operational experience to ensure market stability by permitting only established entities to engage in securitisation activities.
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