Markets regulator Securities and Exchange Board of India (SEBI) has proposed a minimum ticket size or investment threshold of Rs 1 crore for RBI-regulated originators and unregulated entities engaged in securities activities. securitization.

The proposal also introduces limitations on the number of investors in private placements, allowing privately issued securitized debt securities (SDIs) to be offered to up to 200 investors. If this limit is exceeded, the broadcast must be qualified as a public broadcast.

As per the proposal, public offers should remain open for a minimum of three days and a maximum of 10 days with advertisement requirements aligned with SEBI regulations for non-convertible securities. Further, the regulator has suggested that all securitized debt securities should be issued and transferred exclusively in demat form.

The current framework is based on the SEBI Regulations 2008 with updates to the Reserve Bank of India’s 2021 Guidelines on Securitization of Standard Assets.

SEBI is currently considering updating the regulatory framework for securitized debt instruments and has sought public comments till November 16 on the proposals.

On risk management, SEBI has proposed that originators should maintain a minimum risk retention of 10 per cent of the securitized pool or 5 per cent for receivables having a maturity of up to 24 months.

A minimum holding period requirement will also be specified by SEBI for the underlying debts to ensure that originators retain an interest in the underlying assets, the regulator said in a consultation paper.

The market regulator further suggested including an optional clean-up call for originators, allowing them to buy back up to 10 percent of the initial value of the assets. This call is optional and intended to help manage the longevity of the pool without imposing additional commitments on the part of the initiator.

Liquidity facilities, essential for managing time mismatches in cash flows, should be provided either directly by the originator or through a designated third party.

The updated definition of “debts/receivables” limits permitted underlying assets to listed debt securities, accepted trade receivables, rental income and equipment leases, while prohibiting the securitization of single assets.

The proposal establishes minimum background requirements for originators and obligors. Originators must have at least three years of operational experience, while trade receivables specifically require at least two successful, default-free payment cycles.

IDSs are financial products created by aggregating different types of debt, such as loans, mortgages or receivables, and then selling them as securities to investors. This process, known as securitization, allows the originator (such as a bank) to convert illiquid assets into liquid assets, providing an alternative source of financing.

Investors in these instruments receive returns based on the performance of the underlying debt pool, and the risk is spread across multiple assets, offering potentially attractive returns.

(With inputs from PTI)