• The Indian government has recently approved a noteworthy scheme that provides full guarantee cover for any debt raised by the Corporate Debt Market Development Fund (CDMDF).
• This backstop facility is designed to provide investment-grade corporate debt to investors.

Monitoring the scheme

• In order to ensure that this scheme operates effectively, the Securities and Exchange Board of India (SEBI) has released a comprehensive framework for the CDMDF.
• Additionally, the Department of Economic Affairs (DEA) has announced that the Guarantee Fund for Corporate Debt (GFCD) will manage the Guarantee Scheme for Corporate Debt (GSCD).
• The GFCD will be a trust fund that is run by the DEA and managed by the National Credit Guarantee Trustee Company Ltd.
• Overall, this new scheme represents an important development in India’s corporate debt market and is likely to have a significant impact on the country’s economy in the years to come.

• It is also worth noting that the market regulator has released detailed guidelines for mutual fund schemes and asset management companies that are interested in investing in CDMDF units.
• The CDMDF is essentially an alternative investment fund that serves as a backstop for investment-grade corporate debt securities.
• It will provide secondary market liquidity and a permanent institutional framework for times of market stress.

Investment

• It’s important to understand that during normal times, CDMDF will deal in:
  • Low-duration government securities
  • Treasury bills
  • Tri-party repo on G-secs
  • Guaranteed corporate bond repo with a maturity not exceeding seven days
• However, in times of market dislocation, CDMDF will buy corporate debt securities, including listed money market instruments, based on the long-term rating of issuers.
• This approach will help ensure that the fund is able to provide a reliable source of support for investors during times of financial turbulence.

Investment policy

• CDMDF, a mutual fund, follows a strict investment policy when purchasing securities from the secondary market.
• Their focus is on investment-grade securities with a residual maturity of up to five years.
• They do not purchase any defaulted or below-investment-grade debt securities or securities with a high risk of default or adverse credit news.
• Furthermore, their purchases are made at a fair price, taking into account liquidity, interest rate, and credit risks, ensuring a balanced and secure investment for all stakeholders.

Payment

• In terms of payment, the sellers of the debt securities will receive 90% of the consideration in cash and 10% in units of CDMDF
  • It provides a balanced and equitable transaction for all involved parties.

Tenure

• In accordance with Sebi regulations, CDMDF will be launched as a close-ended scheme with an initial tenure of 15 years, with the possibility of extension subject to the discretion of the DEA in consultation with Sebi.
• Additionally, the initial closing date will be determined by the date on which contributions from all AMCs and specified schemes have been received by CDMDF, ensuring a transparent and streamlined investment process.

Subscriptions

Securities and Exchange Board of India

• The Securities and Exchange Board of India (SEBI) is the regulatory authority responsible for overseeing the securities market in India.
• It was established on April 12, 1992, through the passing of the SEBI Act, 1992.
• SEBI’s primary objective is to protect the interests of investors, promote the development of the securities market, and regulate various participants in the market.
• Key functions and responsibilities of SEBI include:
  1. Regulation of securities market:
     • SEBI regulates and supervises various segments of the securities market, including:
       • Stock exchanges
       • Brokers
       • Mutual funds
       • Portfolio managers
       • Depositories
       • Other intermediaries
  2. Investor protection:
     • SEBI aims to safeguard the interests of investors by ensuring fair and transparent dealings in securities and preventing fraudulent and unfair trade practices.
  3. Promoting market development:
     • SEBI takes initiatives to promote the growth and development of the securities market by introducing new financial instruments and market infrastructure.
  4. Regulation of listed companies:
     1. SEBI regulates the conduct of listed companies by:
        1. Imposing disclosure requirements
        2. Corporate governance norms
        3. Regulations related to insider trading
  5. Registration and regulation of intermediaries:
     • SEBI registers and regulates various intermediaries operating in the securities market, such as:
       • Brokers
       • Sub-brokers
       • Merchant bankers
       • Credit rating agencies
  6. Prohibition of insider trading:
     • SEBI enforces strict rules against insider trading to prevent unauthorized trading based on non-public information.
  7. Regulating mutual funds:
     • SEBI regulates the functioning and operations of mutual funds to protect the interests of investors and ensure the proper functioning of these investment vehicles.
  8. Surveillance and enforcement:
     • SEBI employs surveillance mechanisms to monitor market activities and takes enforcement actions against entities found in violation of securities laws.
• SEBI plays a crucial role in maintaining the integrity and stability of India’s securities market and ensures that market participants adhere to the necessary regulations to foster investor confidence and market efficiency.