These changes are intended to assist in the timely fulfillment of DT duties.
The regulator has proposed changes in how recovery expenditure funds are used, supports debenture recovery processes and has suggested standardizing the format of debenture trust deeds to streamline documentation.
The proposals are aimed at improving the ease of doing business for debenture trustees.
In its consultation paper, the regulator proposed that DTs should divest non-SEBI-regulated activities into a new legal entity, which would not be able to use the DT’s brand name after a transition period of one year. These entities may share resources but should have separate legal responsibilities.
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The demerged entity will come under the jurisdiction of the relevant financial regulator for those activities. This will clarify who handles investor complaints related to non-SEBI-regulated services.
Some DT services are regulated by other financial regulators, but others lack clear regulatory authority, posing potential risks.
At present, SEBI’s rules for DTs do not specify restrictions on other services that these entities may perform outside the direct purview of the market regulator. This includes services such as securitization trustee, escrow agent and monitoring agent roles.
DTs managing SEBI-regulated activities such as listed non-convertible debentures, REITs and non-SEBI activities like Public Deposit Trusteeship Data from major DTs in FY 2022-23 and FY 2023-24 suggested that about 30 per cent of their income comes from SEBI’s purview. comes from the underlying activities (such as listed NCDs and REIT trustees), and the rest Others come from activities regulated by authorities.
Sebi said cross-default means a default in a debt security which defaults in another debt security triggering a default in the first mentioned debt security, and hence in the said ISIN.
Also, it has suggested aggregating debenture holders on different ISINs (International Securities Identification Numbers) for decision making and voting process.
The Securities and Exchange Board of India (SEBI) has sought public comments on these proposals by November 18.
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