Latest News | Sebi Asks Depositories to Develop Platform for Security, Covenant Monitoring

New Delhi, Aug 13 (PTI) Capital markets regulator Sebi on Friday said that a platform will be developed for capturing process of security creation, monitoring of covenants and keeping a track of asset cover.

The decision has been taken based on the recommendations of a working group, comprising officials from Sebi, depositories, stock exchanges and trustees association of India, constituted by the regulator, according to a circular.

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The group was constituted with an aim to strengthen the process of security creation, monitoring of security created, monitoring of asset cover and covenants of the non-convertible securities.

Based on the recommendations of the working group, Sebi said that a platform for security and covenant monitoring system hosted by depositories will be developed.

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The system will be used for recording and monitoring of the security created and monitoring of covenants of non-convertible securities.

It will capture the process of creation of security -- due diligence, charge creation etc -- continuous monitoring of covenants by debenture trustees (as applicable), credit rating of the non-convertible securities by the credit rating agencies (CRAs) etc.

According to Sebi, depositories will create, host, maintain and disseminate the system for security and covenant monitoring using distributed ledger technology.

Further, the depositories will provide secure login credentials to issuers, CRAs, debenture trustees (DTs) for recording and verifying requisite information on the system.

They will put in place adequate safeguards to ensure the integrity and security of the data on the system and share information with the other depository for integrating and maintaining a compatible system.

Also, they will develop an alert mechanism to be sent to the stakeholders for submission, acceptance and rejection of information and alerts for periodic and event based compliances.

Depositories will "provide functionality of maintaining a trail/ log of all the communication/ interaction amongst various stakeholders viz CRAs, DTs, Issuers, depositories etc and also in the system on account of recording and verification of information by the stakeholders".

In addition, they will provide functionality in the system to make changes in already recorded information by stakeholders in case a change is required to be made for rectifying any discrepancy or recording additional information and verification of same by responsible stakeholder.

They will be responsible for the effective and smooth functioning of the system and will develop a mechanism to establish accountability/ responsibility for the rectification of various issues and glitches that may hamper the effective functioning of the system.

In line with current market practices, related to issuance of non-convertible securities, the system, as per the nature of the non-convertible securities, will enable various stakeholders to record information for aspects like security creation, asset cover and covenants; and periodical monitoring of security cover, asset cover and covenant.

Further, the system will help in record information pertaining to interest and redemption payment (part and full) of non-convertible securities and credit rating.

The system will come into effect from April 1, 2022, the Securities and Exchange Board of India (Sebi) said.

However, testing of the system will start from January 1, 2022 and therefore, issuers, debenture trustees and CRAs have been asked to carry out necessary changes, if any, in order to be ready to execute such functions as required for the proposed platform, it added.

(The above story is verified and authored by Press Trust of India (PTI) staff. PTI, India’s premier news agency, employs more than 400 journalists and 500 stringers to cover almost every district and small town in India.. The views appearing in the above post do not reflect the opinions of LatestLY)