The Securities and Exchange Board of India (Sebi) has enhanced the disclosure norms for structured products and market-linked debentures which intend to list on the stock exchanges. It has placed stronger checks regarding the net worth of issuers, minimum investment size, disclosure of commissions and indicative returns, among other things.
In a circular issued on Wednesday, the regulator noted that “ a variety of hybrid securities which combine features of plain-vanilla debt securities and exchange-traded derivatives are being issued through private placement and listed on stock exchanges.” In this backdrop, Sebi has decided to bring in “additional disclosures and other requirements in offer documents” for such instruments.
According to the new norms, only entities having a minimum net worth of Rs 100 crore will be eligible for launching such an issue. While the issuers have been given flexibility for determining the face value, the minimum ticket size has been fixed at Rs 10 lakh.
The issuers have also been mandated to disclose the credit rating of the instrument, along with a detailed scenario analysis or valuation matrix showing the security value under different market conditions. Further, any kind of commission being paid to distributors has to be disclosed in the document.
The regulator has also made it mandatory for issuers to appoint a third-party valuation agency, which has to be a credit rating agency registered with Sebi. “This valuer shall publish on its website and provide to the issuer the value of the securities, at a frequency not less than once in a calendar week. Also, the issuer shall provide an investor with the value whenever the latter asks for it,” said the circular. Meanwhile, the cost incurred for the valuation has to be disclosed in the offer document and the same cannot be charged to the investor.
If the issue is being sold to retail investors, the intermediary has to ensure that investors understand the risks involved and are capable of taking the risk posed by such securities. “The intermediary shall provide the investor with guidance on exit loads/exit options/ liquidity support, if any, etc, being provided by the issuer or through the secondary market,” added the circular.
The new norms, which will be applicable for all offer documents on which in-principle/final approval is sought from stock exchanges on or after November 1, will not be applicable for “principal non-protected” instruments.
