Guidelines for Issue and Listing of Structured Products/ Market Linked Debentures
Summary
SEBI issues guidelines for the issue and listing of structured products and market-linked debentures to address their hybrid nature. The circular mandates specific eligibility criteria, including a minimum issuer net worth and ticket size, alongside enhanced disclosure requirements. It also directs stock exchanges, merchant bankers, and credit rating agencies to ensure compliance with these new standards.
Text
These guidelines shall be applicable to ‘structured products’ or ‘market linked debentures’, by whatever name they are called including all such securities that have an underlying principal component in the form of debt securities as defined under R.2(d) of SEBI (Issue and Listing of Debt Securities) Regulations, 2008 and where the returns are linked to market returns on other underlying securities/ indices.
Securities which do not promise to return the principal amount in full at the end of the tenor of the instrument, i.e., ‘principal non-protected’ shall not be considered as debt securities under R.2(d) of SEBI (Issue and Listing of Debt Securities) Regulations, 2008 and therefore will not be eligible for issue and listing under the said regulations.
As such securities expose the issuer to market risk, the issuer should have a minimum net worth of at least `100cr.
While the issuers are free to determine the face value for such securities, no invitations for subscription or allotments shall be made for an amount less than Rs.10lakh in any issue.
Credit rating by any registered Credit Rating Agency shall bear a prefix ‘PP-MLD’ denoting Principal Protected Market Linked Debentures followed by the standardized rating symbols for long/ short term debt on the lines specified in SEBI Circular No. CIR/MIRSD/4/2011 dated June 15, 2011.
A detailed scenario analysis/ valuation matrix showing value of the security under different market conditions such as rising, stable and falling market conditions shall be disclosed in a table along with a suitable graphic representation.
A risk factor shall be prominently displayed that such securities are subject to model risk, i.e., the securities are created on the basis of complex mathematical models involving multiple derivative exposures which may or may not be hedged and the actual behavior of the securities selected for hedging may significantly differ from the returns predicted by the mathematical models.
A risk factor shall be prominently displayed stating that in case of Principal/ Capital Protected Market Linked Debentures, the principal amount is subject to the credit risk of the issuer whereby the investor may or may not recover all or part of the funds in case of default by the issuer.
Where indicative returns/ interest rates are mentioned in the information memorandum in percentage terms, such figures shall be shown only on annualized basis.
It shall be disclosed therein that the latest and historical valuation for such securities shall be made available on the websites of the issuer and of the valuer appointed for the purpose.
All commissions by whatever name called, if any, paid by issuer to distributor for selling/ distribution of such securities to end investors shall be disclosed in the offer document.
Conditions for premature redemption of such securities, if any, shall be clearly disclosed in the offer document.
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Source: SecMarx — Guidelines for Issue and Listing of Structured Products/ Market Linked Debentures. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.