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Our Bureau

To come under disclosure-based norms

New Delhi , Dec. 15

Issuers of securitised debt instruments or certificates can heave a sigh of relief, with the Government now veering around the view that the issuance process for such instruments should be supervised on the basis of disclosure-based regulations to be framed by the Securities and Exchange Board of India (SEBI).

This is against the earlier planned `approval-based' approach, which raised some apprehension among market participants that SEBI approval would be mandated for every securitisation transaction.

The Finance Minister, Mr P. Chidambaram, on Friday introduced the Securities Contracts (Amendment) Bill 2006 in Lok Sabha to provide a legal framework for listing and trading of securitised debt, including mortgage backed debt, in the stock exchanges of the country.

Liquidity

The enactment of this legislation and framing of SEBI's disclosure-based regulations is expected to result in improved secondary market liquidity by providing an exit option to investors.

SEBI will frame regulations that would specify the eligibility criteria and other requirements that an issuer needs to fulfil before offering securitised debt instruments to public or getting them listed in a stock exchange.

The Indian securitisation market is largely institution-driven, but remains underdeveloped, primarily due to the absence of trading facility in securitisation instruments or certificates.

The Securities Contracts (Regulation) Amendment Bill 2006, which is a revised Bill, would enable secondary market liquidity for securitised debt instruments as such instruments are now proposed to be covered under the definition of "securities" under SCRA.

Currently, trading in certificates or instruments relating to securitisation transactions cannot take place in stock exchanges, as they are not covered under the definition of `securities' in SCRA, 1956. Buyers of securitised financial certificates or instruments are left with few exit options and therefore the market for such instruments had not picked up.

Securitisation is a form of financing involving pooling of financial assets and the issuance of securities that are re-paid from the cash flows generated by the assets. The most common assets for securitisation are mortgages, credit cards, auto and consumer loans, student loans, corporate debt, export receivable, offshore remittances, etc.

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