The Hindu Business Line : Lok Sabha passes Bill on trading in securitised debt instruments

New Delhi May 14 Trading in securitised debt instruments or certificates on the country's stock exchanges may soon become a reality, with the Lok Sabha today passing a Bill that provides the legal framework for listing and trading of such instruments.

The Securities Contracts (Regulation) Amendment Bill 2007 was passed by voice-vote without any discussion.

This Bill, revised, also specifies that issuance of securitised debt instruments would be governed by `disclosure-based regulations' of SEBI as against the earlier planned approval-based approach.

Eligibility norm

The Securities and Exchange Board of India would frame the `disclosure-based' regulations, which 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.

An approval-based approach would have meant that SEBI nod would be mandatory for every securitisation transaction.

The Finance Minister, Mr P. Chidambaram, had introduced the revised Bill in the Lok Sabha in December last year.

underdeveloped

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 enactment of this law would enable secondary market liquidity for securitised debt instruments as such instruments are 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.

Few exit options

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 and offshore remittances.