SEBI permits foreign portfolio investors to write down debt securities

An Overview

Foreign portfolio investors (FPIs) were allowed to write off all debt securities that they were unable to sell on Monday by market regulator SEBI. The Securities and Exchange Board of India (SEBI) stated in a circular that this will only apply to FPIs who choose to renounce their registration.

“In response to multiple stakeholder requests, it has now been decided to allow FPIs to write off all debt securities in their account that they are not able to sell for any reason. Only those FPIs who decide to resign their registration would be affected,” SEBI stated.

The regulator allowed FPIs to write down all of the companies’ shares that they were unable to sell in September. It further stated that the method outlined in the operating rules must be followed for the write-off.

SEBI likely to postpone the T+1 settlement

The Securities and Exchange Board of India (SEBI) is likely to postpone and amend the T+1 settlement cycle mandate. Following comments from international investors, the settlement cycle may now be phased in and only apply to the bottom 100 companies starting February 25, according to sources.

Foreign portfolio investors (FPIs) are objecting to the circular’s provisions, which were supposed to take effect on January 1, 2022. Time zone disparities, the danger of transaction mismatches, and challenges with organising currency on the trading day are all factors that could obstruct a seamless transition to the shorter settlement cycle, according to them.

Most major markets settle trades within two days. Taiwan has returned to the T+2 cycle after switching to the T+1 settlement. Moving equities within important benchmark indices such as the Nifty 50 and the Sensex to the upside, according to experts. If liquidity runs out and FPIs stop trading, the T+1 cycle could be dangerous.

Further Key Takeaways

According to the new plans of the regulator, the bottom 100 stocks by market capitalization will be added to the shorter settlement cycle first, followed by 500 more stocks from the bottom every month until all equities are moved to the shorter settlement cycle.

This will provide systems and market infrastructure institutions with enough time to respond to the new cycle. FPIs will have plenty of time to adjust because they typically trade in the top 200 stocks.

Stock exchanges will be required to continue using the T+1 settlement cycle for a minimum of six months after choosing it for a scrip. Following that, if the exchange wishes to return to the T+2 settlement cycle, it will notify the market one month ahead of time. The minimum notice time will apply to any future move.

Frequently Asked Questions (FAQs)

Q1. What are debt securities?

Debt securities are financial instruments that guarantee a stream of interest payments to their owners. Bonds are a common type of financial instrument and include government bonds, corporate bonds, municipal bonds, collateralized bonds, and zero-coupon bonds.

Q2. What are the distinctions between debt and equity securities?

Debt securities imply a loan to the company, whereas equity securities indicate ownership in the company. Debt securities offer a predetermined return in the form of interest payments, whereas equity securities have variable returns in the form of dividends and capital gains.

Q3. Why is it necessary to purchase debt securities?

Debt securities ensure that interest is paid on time and that the principal is repaid. They can be sold before they reach maturity, allowing investors to profit or lose money on their initial investment.