Sebi’s corporate bond exit finds no takers

A unique facility that allows investors to exit corporate bonds has failed to catch on

- Apoorva Ajith [e-mail]

A senior official from the regulator said the use of the liquidity window has been negligible so far.

(BLOOMBERG)

A unique facility that allows investors to exit corporate bonds has failed to catch on more than a year after the Indian market regulator introduced it, with issuers largely refraining from offering it thanks to a mix of low incentives, excessive guardrails and potential balance sheet uncertainties.

A senior official from the regulator said the use of the liquidity window has been negligible so far. Public data for the use of the mechanism is not available.

The framework, which came into effect on 1 November 2024, was aimed at addressing low market liquidity, a longstanding concern in India’s corporate bond market. In October 2024, the Securities and Exchange Board of India (Sebi) said that limited trading, driven in part by institutional investors holding bonds to maturity, had resulted in the market being perceived as illiquid, discouraging wider participation, particularly from retail investors.

To tackle this, the regulator proposed a mechanism under which issuers could offer a “liquidity window” through put options, allowing investors to sell bonds back to them on pre-specified dates or intervals.