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SEBI Rolled out Framework for CDMDF; mandates FPIs to disclose LEI Code

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SEBI reveals framework for the creation of a fund for stressed debt schemes

On July 27, 2023, the Securities and Exchange Board of India (SEBI) rolled out the Framework for Corporate Debt Market Development Fund (CDMDF) which aims to establish a Backstop Facility to purchase investment-grade corporate debt securities, enhance secondary market liquidity, and boost confidence among the participants in the Corporate Debt Market during periods of stress.

  • It complies with the Guarantee Scheme for Corporate Debt (GSCD) notified by the Ministry of Finance on July 26, 2023.
  • This information by SEBI was provided in the exercise of its powers conferred under Section 11 (1) of the SEBI Act, 1992, read with the provisions of regulations  77  of  SEBI  (Mutual  Funds)  Regulations,  1996,  to protect the interest of investors in securities and to promote the development of securities market.

Points to note:

In June 2023, Chapter III-C was inserted vide amendments to SEBI (Alternative Investment Funds) Regulations, 2012 to facilitate the constitution of CDMDF, an Alternative Investment Fund.

On 28th July 2023, Finance Minister Nirmala Sitharaman launched CDMDF with the aim of advancing the corporate bond market.

Key features of CDMDF:

The Subscribers:

CDMDF units will be subscribed by AMCs (Asset Management Companies) of Mutual Funds (MFs), and specified debt-oriented Mutual Fund (MF) schemes excluding overnight funds and Gilt funds and including conservative hybrid funds.

MF Contribution:

i.MF will contribute 25 basis points (bps) of the specified debt Asset under Management (AUM) to CDMDF. This will lead to a contribution of Rs 2,242 crore by MFs to CDMDF.

  • Incremental contributions will be made by specified debt schemes as their AUM increases every 6 months to maintain the 25 bps investment in CDMDF.

ii.Association of Mutual Funds in India (AMFI) will calculate and inform each MF scheme of their contributions, starting from this December 2023.

Key Guidelines:

i.It is a close-ended scheme with an initial tenure of 15 years after contributions from all Asset Management Companies (AMCs).

ii.CDMDF will purchase securities only from the secondary market that are investment-grade, listed, have a credit rating, and have a residual maturity of up to 5 years.

iii.It will not buy unlisted, below investment grade, defaulted securities, or those with a material possibility of default or adverse credit news/views.

iv.During normal times, the fund will deal in only securities such as low-duration government securities (G-Sec), treasury bills, tri-party repo on G-sec and Guaranteed corporate bond repo with a maturity not exceeding seven days.

v.The sellers will receive 90% of the consideration in cash and 10% in the form of CDMDF units, bearing the risk of first loss and redeemable during the scheme’s tenure.

vi.If the debt AUM decreases, there will be no return or redemption from CDMDF, and delayed contributions will incur an annual interest of 15%.

Note: Within a period of 3 months, stock exchanges must create a distinct window on the current Request for Quote (RFQ) platform to enable purchases, while clearing corporations are also instructed to establish the necessary infrastructure for corporate debt trade settlement by CDMDF during market dislocation.

Disclosure and Fees:

i.CDMDF will disclose the Net Asset Value (NAV) by 9:30 pm on all business days on its investment manager’s website and AMFI’s website.

ii.CDMDF will charge 0.15% of the portfolio value charged on a daily pro-rata basis during normal times, and 0.2% during market stress.

Click Here for Full Official Framework by SEBI

SEBI Mandates Non-Individual FPIs to Disclose Legal Entity Identifier Code

SEBI mandates all non-individual Foreign Portfolio Investors (FPIs) to disclose their Legal Entity Identifier (LEI) code to improve the quality and accuracy of financial data systems for better risk management.

  • Presently, FPIs are required to provide their LEI details in the Common Application Form (CAF), used for registration, KYC (Know Your Customer) and account opening of FPIs on a voluntary basis.

What is LEI?

LEI is a unique 20-character global code, that is used to identify legally distinct entities involved in financial transactions.

Key Points:

i.RBI requires non-individual borrowers with aggregate exposure above Rs 25 crore to obtain an LEI code.

ii.SEBI mandates all existing FPIs (including those applying for renewal) to provide their LEIs to their designated depository participant (DDPs) within 180 days.

  • If failure, their accounts are blocked for further purchases until the LEI is provided.

iii.FPIs must ensure that their LEI is always active.

  • Accounts of FPIs with expired or lapsed LEI codes will be blocked for further purchases until the LEI code is renewed.

This information by SEBI was provided in the exercise of its powers conferred under Section 11 (1) of the SEBI Act, 1992, read with Regulations3(2), 22(1)(j) and 44 of SEBI (FPI) Regulations,2019, to protect the interest of investors in securities and to promote the development the securities market.

Recent Related News:

i.SEBI has mandated alternative investment funds (AIFs) to provide investors with the option of a “direct plan” and introduced a trail model for distribution commission. The framework for direct investments will go into effect on May 1, 2023.

ii.Due to the rise of dependence on cloud computing for delivering IT (Information Technology) services, SEBI drafted a cloud framework for the adoption of Cloud Services by SEBI Regulated Entities (REs).

About Securities Exchange Board of India (SEBI):
The SEBI was constituted as a non-statutory body on April 12, 1988 and it was established as a statutory body in the 1992.
Chairperson– Madhabi Puri Buch
Headquarters – Mumbai, Maharashtra

Penned by – Puneet Kaur , PR by – Abarna Anandhan