The Securities and Exchange Board of India vide its circular dated 23rd June 2020 has introduced an operational framework for transactions in defaulted debt securities and also prescribed the obligations of issuers, debentures trustees, stock exchanges and depositories while permitting such transactions.
As per existing practice, the Stock Exchanges suspend trading/reporting of trades on debt securities before the redemption date. Further, Depositories impose a restriction on off-market transfers on redemption date that restricts transfers on and after the redemption date. It has been proposed to allow these restrictions to be lifted on defaulted debt securities.
Stock Exchange(s) shall not allow any transactions in the defaulted debt securities, two working days prior to their maturity/redemption date and on maturity/redemption date of the defaulted debt securities depositories shall temporarily restrict transactions in such debt securities from such maturity/redemption date till the time its status of the payment is determined.
With regard to default in payment of redemption amount and resumption of the transaction on defaulted debt securities, SEBI said within 2 working days from the date of intimation from the issuer or debenture trustees that issuer has defaulted on its payment obligations, the depositories in co-ordination with exchanges will update the ISIN master file and lift restrictions on transactions in such debt securities and information regarding the resumption of transactions will be disseminated immediately.
Process related to continuous assessment of default status and payment of debt securities or subsequent payment of defaulted debt will be followed till either issuer has been liquidated and the money realized after completion of recovery proceedings or full payment on these securities is made by the issuer.
The operational framework for transactions in defaulted debt securities shall come into force from 1st July 2020.
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