SEBI issues framework for Corporate Debt Market Development Fund

Background

• SEBI has amended SEBI (Alternative Investments Funds) Regulations, 2012, in order to facilitate
  constitution of an Alternative Investment Fund namely, Corporate Debt Market Development Fund
  (CDMDF), to act as a backup facility for purchase of investment grade corporate debt securities.
• It aims to stabilize and foster the Corporate Debt Market during times of stress and enhance the overall liquidity of secondary debt market.
  Overview

1. The fund shall deal only in following securities during normal times-

• Low duration Government Securities
• Treasury bills
• Tri-party Repo on G-sec
• Guaranteed corporate bond repo with maturity not exceeding 7 days.

1. The fees and expenses of the Fund shall be as follows-

• During Normal times: (0.15% + tax) of the Portfolio Value charged on daily pro-rata basis.
• During Market stress: (0.20% + tax) of the Portfolio Value charged on daily pro-rata basis.
  Investment Framework Corporate debt securities to be bought by CDMDF during market dislocation include listed money market instruments. Further, CDMDF shall follow the Fair Pricing document while purchase of corporate debt securities during market dislocation. CDMDF shall disclose Net Asset Value (NAV) of the fund by 9:30 PM on all business days on its website. Following are the specific framework policy within which securities are to be boughtI. CDMDF would buy securities from secondary market and of only investment grade, listed and having residual maturity of upto 5 years.
  II. CDMDF shall not buy any unlisted, below investment grade or defaulted debt securities or securities in respect of which there is a material possibility of default or adverse credit news or views.
  III. CDMDF will sell securities at breakeven/profit as market stabilize, to reduce taking leverage as soon as possible.
  IV. Valuation of portfolio shall be governed by existing norms on valuation under the Mutual Fund
  regulatory framework.
  Purchase Pricing
  While it may not be possible to pre-determine the events and scenarios prevailing at the point of time when purchase of securities is being undertaken by CDMDF, the investment policy may provide for few indicative factors like valuation policies prescribed by Mutual funds, previous day’s valuation of securities by valuation agencies, average of 10 days valuation prior to market dislocation and mark-up in yield over previous day to arrive at floor price.

Bijhon Bordoloi, Audit Associate, SW INDIA