Sebi proposes changes to SDI rules to facilitate growth in listed securitisation market

Markets regulator Sebi on Monday proposed a series of changes to norms governing securitised debt instruments (SDIs), including allowing single-asset securitisation by RBI-regulated entities, winding up of securitisation transactions and easing certain structural restrictions to boost market development.

Besides, the regulator suggested shifting the responsibility for periodic disclosures on the underlying asset pool’s performance from the originator to the servicer. The regulator also proposed changes to the composition of the board of trustees for special-purpose distinct entities.

The proposed changes are aimed at harmonising Sebi’s framework with RBI regulations and facilitating growth in the listed securitisation market.

In its consultation paper, the regulator suggested exempting entities regulated by the Reserve Bank of India (RBI) from the requirement that limits exposure to a single obligor in the asset pool, thereby enabling the listing of single-asset securitisation transactions.

Sebi said the current rule, which caps exposure to any single obligor at 25 per cent of the pool, was aimed at preventing concentration risk but has restricted the listing of SDIs backed by single assets, even though such structures are permitted under the RBI’s framework.

Additionally, the regulator has proposed replacing the requirement of winding up securitisation schemes in case of suspension or cancellation of a trustee’s registration with the appointment of a new trustee, citing inconsistencies with RBI regulations that do not permit unwinding of such transactions.

In another proposal, the regulator recommended removing restrictions that currently bar securitisation transactions between an originator and an SPDE belonging to the same group, provided the originator is regulated by the RBI.The regulator has also proposed shifting the responsibility of periodic disclosures on the performance of the underlying asset pool from the originator to the servicer, which may or may not be the originator. This is aimed at ensuring timely and accurate information flow to investors, given that the servicer handles the collection and monitoring of receivables.

Further, Sebi has suggested changes to the composition of the board of trustees of special purpose distinct entities (SPDEs). For RBI-regulated originators, it proposed limiting representation on the SPDE board to one member without veto powers, aligning with RBI norms to maintain arm’s length transactions.

The Securities and Exchange Board of India (Sebi) has invited public comments on the proposals till May 25.