SEBI completes the application process for public issuance of debt securities by introducing the UPI – Finance and Banking mechanism

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True to its objective of streamlining the process of public debt issuance, across the entire range of securities, SEBI published a circular on November 23, 2020 (Circular), introducing the unified payment interface mechanism (UPI ) as an additional mode for making online requests for public issuances of various debt instruments such as bonds, non-convertible redeemable preferred shares, securitized debt instruments and municipal debt instruments. The circular prescribes the addition of the UPI mechanism as an optional application functionality for public debt issues open for subscription as of January 1, 2021.

Highlights of the circular

(i) In addition to applications via the Applications Supported by Blocked Amount (ASBA) (Self-Certified Syndicate Banks (SCSB) ASBA or Syndicate ASBA) mode, investors can request up to 2 lakhs INR via the UPI mechanism: (i ) offered via a scholarship web / app interface; and (ii) through Syndicate Members, Registered Investment Dealers, Registrar and Transfer Agent and Custodian Participants (Intermediaries).

(ii) These new modes of application also provide for the real-time validation of the investor’s contact details such as PAN, DP ID / Client ID, provided at the time of the auction, by the stock exchange (s) with the depositaries. This will reduce the time required for the overall application process and ensure the completion of stock listing and the start of trading within T + 6 days.

UPI enforcement mechanism

(i) Mode of application

An investor can submit the offer request form (Form) via the following methods:

Via a SCSB or intermediate

Via the stock Exchange

By submitting the form:

I. physically at the SCSB branch, with the ASBA as the sole payment mechanism; Where

ii. to an Intermediary with bank details for blocking funds; Where

to the SCSB or intermediaries and using the bank account linked to the UPI ID to block the required funds, provided that the value of the request is up to INR 2 lakhs. In this case, the Intermediary will upload the offer on the auction platform of the stock exchange and the amount of the request will be blocked via the UPI mechanism.

Via the exchange’s application / web interface, post the offer which will be automatically downloaded and the amount will be blocked using the UPI mechanism.

(ii) Processing of the request via the UPI- mechanism

a. Tendering and validation process

– An investor submits the form, which includes offer details and UPI ID, to intermediaries or downloads the application through the exchange’s application / web interface.

– The intermediaries then upload the details of the offer and the UPI ID on the stock auction platform, after which the exchange and the depositary proceed to the validation of the PAN and demat account of the investor respectively (in time almost real).

– Subsequently, the stock exchange will send an SMS to the investor concerning the submission of his form.

b. Blocking process

– After the validation process, the exchange will continuously update the sponsoring bank with the details of the offer as well as the UPI ID.

– The Sponsor Bank will initiate an electronic mandate request to the investor for authorization to block funds or for any modification. Display on which the investor can view the details of the offer and authorize the single mandate (given for each request). However, the investor cannot add / modify the form, but can withdraw the offer and reapply. In the event of a mismatch between the offers, it will be sent to the sponsoring bank for further processing by the stock exchange.

– In case of successful validation, the investor’s bank will receive the request for blocking the required funds, equivalent to the amount of the request and the investor would be informed of the blocking of funds and the information containing the status of the blocking request must be shared with the Sponsor Bank and the stock exchange and displayed on the stock exchange platform. For reconciliation purposes, this information should also be shared with the Registrar.

vs. After the show closes

– After receipt of auction and stock market blocking information, the registrar will reconcile the offer data and the blocking confirmation corresponding to the offers of all applications in the investor category and prepare the allocation basis .

– After approval of the Allocation Basis, the Registrar will share the debit file with the Sponsor Bank (via the Exchange) or SCSBs, for credit of funds or release of excess funds, as the case may be.

Accordingly, the sponsoring bank must liaise with the investor’s bank and issue the debit / fund movement collection request to the public issuing account (PIA) and release of any remaining funds, if applicable. appropriate and after confirmation of receipt of funds in the PIA, the securities will be credited to the investor’s account in accordance with the full / partial allocation. In the absence of attribution to an investor, the mandate will be revoked, and the amount of the request will be released.

Increased responsibilities

The circular introduced increased responsibilities for participants in the IPU process, among others:

(i) The scholarships are responsible for: (a) the accurate, rapid and secure transfer of the electronic application package to the Registrar as well as the periodic dissemination of information on the scholarship website; and (b) deal with investor complaints arising from inquiries submitted electronically through the trading application / web interface portal or through its trading members.

(ii) Intermediaries are responsible for: (a) dealing with investor complaints arising from requests they have uploaded; and (b) the rejection of applications in the event of a discrepancy between the data entered on the exchange platform and obtained by the registrar.

(iii) The receiving bank is responsible for (a) dealing with investor grievances arising from the failure to confirm funds to the registrar despite successful completion of the payment instrument in the PIA; and (b) if there has been a delay or operational failure in sending the forms to the Registrar.

comments

SEBI’s intention with the introduction of the UPI mechanism is (i) reduction of post-issue delays for allocation and registration; and (ii) allow more modes of investor participation in the public issuance of debt securities. With the UPI mechanism, SEBI sought to (a) further digitize the process of issuing public debt and bringing it to the same level as issuance of shares; and (b) provide platforms for instant fund transfer, real-time mandate creation and the nomination process. These measures are expected to increase individual participation, the investor base for issuers and enhance investor confidence.

It can be noted that the UPI mechanism introduced earlier for public equity issues has not yet proven to be the preferred choice of investors. This could be due to the multiple steps that investors have to take to download their offers. The process encountered some problems in the public issuance of equity shares. We hope that these are startup issues that will be resolved in the near future and that the UPI mechanism will become as popular as ASBA. Due to the COVID-19 pandemic, more and more bank account holders are using the UPI mechanism to make their payments. Overall a very welcome step from SEBI.

The content of this document does not necessarily reflect the opinions / positions of Khaitan & Co but remains solely those of the author or authors. For any further questions or follow-up, please contact Khaitan & Co at [email protected]

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