Informal Guidance - No Action Letter - Clarification on trading in privately placed fixed income securities

Aug 30, 2004
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Informal Guidance

Ref. No. TRE/BONDS/04-05

June 7, 2004

Division on Policy,

Securities & Exchange Board of India,

World Trade Centre – 1, 29th floor,

Cuffe Parade,

Mumbai 400 005

Kind Attn Ms Aparna Thyagrajan

 

Dear Madam,

Re: Informal Guidance Scheme – No Action Letter - Clarifications on trading in Privately placed Fixed Income Securities.

Kindly recall our discussions in your office regarding the captioned subject in the recent past. As discussed during the meeting, we wish to seek clarification under your "Informal Guidance Scheme" on the captioned subject.

 

We are the State Industrial Development Corporation (SIDC) for the state of Maharashtra promoted in 1966 by the Govt. of Maharashtra under the provisions of The Companies Act, 1956. As of date, the Government of Maharashtra holds 49% of the Equity Share Capital of our Company. The focus of our activities has been, meeting the fund based / non-fund based requirements of the Industrial sector as also investment in the equity / debt Market.

 

We are registered with the Reserve Bank of India as a Non-Deposit taking NBFC. We are registered with SEBI under Registration No. MB-INM 000000305.

 

During the almost four decades of its existence, SICOM has also acted as an arm of the Government of Maharashtra in implementing the Industrial Policy initiatives of the State and continues to work closely with the State on various issues of financial import.

 

Accordingly, SICOM has been actively associated with the market borrowing program of various Special Purpose Vehicles (SPVs) of the Government of Maharashtra.

 

We are also involved in the day-to-day management of the affairs of some of these SPVs including the management of their resource raising program. We are paid management fees for managing the day –to-day affairs of the SPVs. Some of such SPVs intend to list the securities issued by them on the Debt Segments of the various stock exchanges in the near future.

 

As has been mentioned earlier, as a part of our business activity, we also invest / trade in the securities issued by various State / Central Govt PSUs / SPVs and other debt securities.

 

In view of the above, we seek clarification of SEBI in the form of a "No Action Letter" as to whether we can trade in securities of SPVs, whose day-to-day management is entrusted to us.

 

 

As required under the Informal Guidance Scheme, we enclose herewith a Demand Draft No.087188 for Rs.25,000/- drawn on Central Bank of India, Nariman Point, Mumbai dated June 7, 2004 in favour of "Securities and Exchange Board of India" towards the fees payable to you for clarifications sought as above.

 

We request an early reply in the matter.

 

Thanking you,

 

Yours faithfully,

 

 

(Jitendra Jain)

Associate Vice President.

_

Ref.No.TRE/BONDS/04-05

August 17, 2004

 

Market Regulation Department – Policy,

Securities & Exchange Board of India,

World Trade Centre – 1st Floor,

Cuffe Parade,

Mumbai – 400 005

Kind Attn: Ms Aparna Thyagarajan,

 

Dear Madam,

 

 

Re: Informal Guidance Scheme – No Action Letter – Clarifications on trading in Privately placed Fixed income Securities.

 

 

This has reference to the our telephonic discussions this afternoon.

 

As desired by you, we wish to clarify as under:-

 

     

  1. The securities of the SPVs would be in the form of Bonds.
    2.

     

     

  2. The securities would be listed on the Wholesale Debt Segment of the Stock Exchanges.
    3.

     

 

We trust the above meets your requirements.

 

Thanking you,

 

Yours faithfully,

 

(A S Ukalkar)

Manager

 

REPLY GIVEN BY MRD-DIVISION OF POLICY

Deputy General Manager

Market Regulation Department – Policy

MRD/Policy/IGS/AT/ /2004

Email:-sundaresanvs@sebi.gov.in

 

August 30, 2004

Shri A S Ukalkar

Manager (Treasury)

SICOM Limited

Nirmal, 1st floor

Nariman Point

Mumbai – 400 021

 

 

Dear Sir,

 

Sub: Informal Guidance – No Action Letter – Clarification on trading in privately placed fixed income securities

 

Ref: Request for Guidance from SICOM Ltd. vide letters No. TRE/BONDS/04-05 dated June 07, 2004, June 24, 2004 and August 17, 2004

  1.  

       

    1. SICOM is a State Industrial Development Corporation for the State of Maharashtra.
      2.

       

       

    2. The Govt. of Maharashtra holds 49% of the equity capital of SICOM.
      3.

       

       

    3. The primary activities of SICOM include meeting the fund based/non-fund based requirements of the industrial sector.
      4.

       

       

    4. SICOM is registered with the RBI as a non-deposit taking NBFC and with SEBI as a Merchant Banker.
      5.

       

       

    5. SICOM has been actively associated with the market borrowing program of various special purpose vehicles (SPVs) of the Government of Maharashtra.
      6.

       

       

    6. The SPVs intend to list some of the securities issued by them on the Wholesale Debt Segment of various Stock Exchanges. These securities will be in the form of bonds and are not securitized debt instruments.

      7.  

    7. SICOM is involved in the day to day management of the affairs of some of these SPVs including the management of their resource raising program.
      8.

        

  2. Please refer to the letters referred to above seeking clarification on the trading in privately placed fixed income securities under SEBI (Informal Guidance) Scheme, 2003.

    3.  

     

  3. You had represented as under:

    4.  

     

  4. On the above facts you have sought clarification in the form of a No-action letter as to whether you can trade in the privately placed debt securities issued by the Special Purpose Vehicles (SPVs) whose day to day management is entrusted to you. This clarification is sought by you in the context of SEBI Circulars No.SEBI/MRD/SE/AT/2003/30/09 dated September 30, 2003 and No.SEBI/MRD/SE/AT/46/2003 dated December 22, 2003.
    5.

     

     

  5. Our clarification to your aforesaid query is as under:-
    6.

     

  

  1.  
    1. As per the aforementioned circulars, the trading in the privately placed debt securities would be permitted in standard denomination of Rs. 10 lakhs in the anonymous, order driven system of the stock exchanges in a separate trading segment. The marketable lot would be Rs. 10 lakhs.

      2.  

       

    2. All class of investors would be permitted to trade subject to the said standard denomination/marketable lot.

      3.  

       

    3. The trades executed on spot basis shall be reported to the stock exchange/s.
      4.

       

    4. Therefore, within the provisions of the aforesaid circulars, SICOM would be eligible to trade in the privately placed and listed debt securities issued by the SPVs which are managed by you.
      5.

       

       
    5. Any investment or trade in such securities by SICOM would be subject to the SEBI (Prohibition of Insider Trading) Regulations, 1992.
      6.

       

 

 

     

    5.The above clarifications are based on the representation made to the Department in your aforesaid letter. Different facts or conditions might require a different result. This letter does not express decision of the Board on the questions referred.

     

    6.You may note that the above views are expressed only with respect to the clarification sought on the circulars referred by you in your aforesaid letter and do not affect the applicability of any other law or Regulations of SEBI.

 

 

Yours faithfully,

V S SUNDARESAN