Sebi issues operational guidelines for covenant monitoring with DLT

Capital markets regulator Sebi on Monday said it has issued operational guidelines for security and covenant monitoring using Distributed Ledger Technology (DLT).

In August, the regulator specified the manner of recording of charges by issuers and manner of monitoring by debenture trustees, credit rating agencies and responsibilities, among others. The measures were aimed to strengthen the process of security creation and monitoring of security created, asset cover and covenants of the non-convertible securities.

With effect from April 1, 2022, the recording of asset details and their verification, allotment, listing and payment of interest or redemption has been made available in the DLT system.

The backbone of the DLT system is uniqueness of assets recorded in the system and to ensure uniqueness of the assets of the issuer offered as security, appropriate validation or duplicate checks based on parameters identified for each asset type have been put in place in the system, Sebi said in a statement on Monday.

Further, for data exchange and verification across depositories, format for unique asset ID assigned to an asset has been standardised to a 12-digit alphanumeric string.

Debenture Trustees (DTs), on a yearly basis, will also reconcile and eliminate duplicate entries for an asset in the system.

To begin with, movable assets — furniture, equipment, inventory — and certain other assets can be tracked at the portfolio level.

Relaxation has been provided till July 1 to issuers who are unable to record details in the system after providing explanation to depositories, post which ISIN shall not be allotted to an issuer for non-compliance.

For existing outstanding non-convertible securities, issuers will have to enter the details into the DLT system before September 30, Sebi said.

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