Sebi in process to finalise modalities to set up backstop facility for corp debt market

Capital markets regulator Sebi is in the process of finalising the modalities to set up a "backstop facility" for the corporate debt market. In addition, the regulator is mulling to revamp the corporate bond database, which will be accessible to all investors, Sebi said in its annual report for 2020-21.

This database will make available more granular level information about debt covenants to investors in the debt market, it added.

The backstop facility will be an entity that can trade in relatively illiquid investment-grade corporate bonds and be readily available in times of stress to buy such bonds from various market participants in the secondary market.


Based on a proposal from Sebi, an announcement in the Union Budget for 2021-22 was made with regard to the creation of a backstop facility that would purchase investment-grade debt securities both in stressed and normal times, and help the development of the bond market.

"Currently, Sebi along with other stakeholders, including the Ministry of Finance and the mutual fund industry, is in the process of finalising the modalities to implement the Budget announcement," according to the annual report.

Further, the regulator has mentioned about the pipeline of other proposals being worked on to increase confidence in the corporate bond market.

In its report, Sebi said that asset management companies (AMCs) of mutual funds are in the process of setting up an entity for recognition as an LPCC (Limited Purpose Clearing Corporation) for clearing and settling repo transactions in corporate debt securities.

The regulator has already issued the framework for LPCC that included a contribution of Rs 150 crore towards the share capital of the proposed LPCC by AMCs. "It is expected that the entity formed by AMCs for repo clearing would be functional soon," the Securities and Exchange Board of India (Sebi) said.