Corporate bonds

SEBI proposes capping ISINs for corporate bonds to improve liquidity

ISINs, which are 12 characters long, are used to uniquely identify securities such as stocks, bond warrants and commercial paper.

In a bid to boost liquidity in the corporate bond market, the Securities Exchange Board of India (SEBI) on Friday suggested further capping the number of ISINs for such bonds issued on a private placement basis.

The 12-character International Securities Identification Numbers (ISIN) code is used to uniquely identify securities such as stocks, bond warrants and commercial paper.

“Given that issuers are currently not using even half of the maximum ISINs allocated to them, it is believed that additional capping of ISINs will not only reduce bond market fragmentation and improve the liquidity premium, but will also help issuers and investors,” SEBI said in a consultation paper.

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Accordingly, it proposed to further restrict the number of ISINs maturing per exercise for corporate bonds issued under a private placement.

The regulator has suggested that six ISIN codes expiring per financial year should be allowed for ordinary debt securities compared to 12 currently. In addition, he proposed to put a cap of five ISINs for structured debt securities.

In addition, it has been proposed to cap capital gains tax debt securities issued by authorized issuers under the Income Tax Act at six ISINs. The current limit is 12.

SEBI has invited public comments on the consultation paper until November 21.

Issuers reported that capping ISINs and reissuing bonds in the same ISINs helped them better project their cash needs and thus enabled them to effectively meet their asset-liability management (ALM) requirements. , according to the consultation document.

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They also said that, procedurally, it has helped to reduce the multiplicity of formalities such as filing offering documents, creating ISINs and monitoring covenants.

“It is observed that in the case of government securities (G-Secs), the outstanding amount per ISIN is very high and a new ISIN is only issued when the outstanding amount in that ISIN reaches a particular threshold. translates into less fragmentation and therefore increased liquidity and traction for G-Sec trading,” SEBI noted.

Furthermore, the regulator stated in the consultation paper that if the number of ISINs per issuer is limited, the fragmentation between different bonds will decrease and hopefully this could lead to increased liquidity in the secondary market.