Sebi releases new e-book mechanism guidelines to address ‘fastest finger first’ problem

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In a bid to address the ‘fastest finger first’ concern, Sebi on Monday changed the e-book creation process for private debt placement to ensure allocations are based on the ‘best offer’. rather than the bidder with the best technology to place the fastest bid. In addition, the regulator has introduced the concept of anchor investor as an option, to allow issuers to assess demand and receive assurances from certain potential investors for subscription, according to a circular. In addition, the framework for existing e-book providers (EBPs), such as thresholds for applicability, bidding limits for arrangers, and default penalties, have been changed. The new framework comes amid reports of some high-speed traders outwitting traditional debt investors, including bond houses, asset managers and insurers, by allegedly using specialized software to obtain values ​​in a “fastest finger first” contest. ”In order to address the ‘fastest finger first’ problem, it is essential to modify the book creation process to ensure allocations based on the ‘best bid’ rather than the bidder with the best technology to place the fastest bid,” said the Securities and Exchange Board of India (Sebi). The new framework will come into effect on January 1 next year. Sebi said the EBP mechanism is for all private placements of debt securities of issue size Rs 50 crore and above, including the green shoe option, and the exchanges are the providers of e-books. EBP shall provide a facility for eligible participants to define the range within which quotes may be placed, from its user interface, in order to avoid “fat finger” errors. “Each Eligible Participant must provide confirmation to EBP that they are not using any software, algorithms, bots or other automation tools, which would provide unfair access to place bids on the EBP Platform,” said the regulator. Each EBP shall ensure that it does not grant any preferential access to a bidder on a selective basis. An eligible participant cannot bid for an amount greater than Rs 100 crore or 5% of the base issue size, whichever is lower, through the arranger on the EBP platform. However, Foreign Portfolio Investors (REITs) can bid through their custodians. An Arranger may bid on behalf of multiple Participants, subject to each Participant’s limits. For offers made by an arranger for a particular issue, Sebi said that arranger will need to disclose to EBP at the time of the tender whether the offer is a proprietary offer, a client offer or a consolidated offer. For consolidated offers, the arranger must disclose the breakdown between the proprietary offer and the client offer. In addition, for client offers, the arranger will have to disclose the names of this category of eligible participants (QIB or non-QIB) and the amount of the offer of each eligible participant. Regarding the sanction, Sebi said that in case of non-compliance with the payment obligations by the beneficiaries and the principal investors, these beneficiaries and principal investors will be prohibited from accessing the auction platform on all EBPs for a period of 30 days from the date of such default. In the event of three cases of non-compliance with payment obligations on all EBPs, by a client for whom an arranger has bid, this arranger will be prohibited from accessing the auction platform on any EBP for seven days. The issuer will have the option of availing itself of an “anchor portion” in the base size of the issue. They will have the discretion to select the lead investor for the lead party.

The amount of the allocation to the principal investor will be at the discretion of the issuer, subject to a total allocation to the principal(s) not exceeding 30% of the base issue size . There will be no auctions for the anchor part on the EBP platform. This came after Sebi received representations from various market participants requesting a review of the provisions relating to the EBP platform. The issues were also discussed with market participants, including issuers, arrangers, investors – banks, mutual funds – exchanges, custodians, as well as at meetings of the Corporate Bond Advisory Committee and securitization.

(This story has not been edited by the Devdiscourse team and is auto-generated from a syndicated feed.)

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