Tuesday, 3 November 2015

Designated Securities

The Securities and Exchange Board of India (Listing Obligation and Disclosure Requirements) Regulations 2015 was notified on 2nd September 2015 and will come into force from 1st December 2015. In this post we will discussion definition of Designated Securities.

Designated Securities

Designated Securities” means specified securities, non-convertible debt securities, non-convertible redeemable preference shares, perpetual debt instrument, perpetual non-cumulative preference shares, Indian depository receipts, securitised debt instruments, units issued by mutual funds and any other securities as may be specified by the Board. [Regulation 2(1)(h) of SEBI (LODR) Regulations, 2015]
To understand it better, we will read definition of each word used in the definition of Designated Securities.

Specified Securities

‘specified securities’ means ‘equity shares’ and ‘convertible securities’ as defined under clause (zj) of sub-regulation (1) of regulation 2 of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009. [Regulation 2(1)(zl) of SEBI (LODR) Regulations, 2015]

Equity Shares

Equity shares are not defined in these regulations but may be understood with reference to equity share capital defined in explanation to Section 43 of the Companies Act, 2013. Equity shares capital with reference to any company limited by shares, all share capital which is not preference share capital.  According to Section 43(a), Equity share capital may be with voting rights or with differential rights as to dividend, voting or otherwise. As per Section 2(84) of the Companies Act, 2013, share means a share in the share capital of a company and includes stock. Accordingly, equity share means a share in the equity share capital of a company.
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In absence of any other definition, similar meaning of equity share may be taken in companies not limited by share capital but having share capital.

Convertible Securities

Convertible security means a security which is convertible into or exchangeable with equity shares of the issuer at a later date, with or without the option of the holder of the security and includes convertible debt instrument and convertible preference shares. [Regulation 2(1)(k) of SEBI (ICDR) Regulation 2009]
To understand concept of securities, we will refer to definition of security under the Securities Contract (Regulation) Act, 1956.
Security
Security include –
  • Share, scripts, stock, bond, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or body corporate;
  • Derivative;
  • Unit or any instrument issued by any collective investment scheme to investors in such scheme;
  • Security receipt as defined in clause (zg) of section 2 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 {SARFAESI 2002};
  • Units or any other such instrument issued to the investor under any mutual fund scheme; {certain exception there};
  • Any certificate or instrument (by whatever name called), issued to an investor by any issuer being a special purpose distinct entity which possess any debt or receivable, including mortgage debt, assigned to such entity, and acknowledging beneficial interest of such investor in such debt or receivable, including mortgage debt, as the case may be;
  • Government securities;
  • Such other instrument as may be declared by the Central Government to be securities {onshore rupee bond issued by multilateral institutions};
  • Rights or interest in securities. [Section 2(h) of Securities Contract (Regulation) Act, 1956]

Non – Convertible Debt Securities

‘Non – Convertible Debt Securities’ which is ‘debt securities’ as defined under regulation 2(1)(e) of the Securities and Exchange Board of India (Issue and Listing of Debt Securities) Regulations, 2008. [Regulation 2(1)(t) of SEBI (LODR) Regulation 2015]

Debt Securities

“Debt Securities” means a non-convertible debt securities which create or acknowledge indebtedness, and include debenture, bonds and such other securities of a body corporate or any statutory body constituted by virtue of a legislation, whether constituting a charge on the assets of the body corporate or not, but excludes bonds issued by Government or such other bodies as may be specified by the Board, security receipts and securitized debt instruments. [Regulation 2(1)(e) of SEBI(ILDS) Regulations 2008]
Debt securities include debentures and bonds. Bond issued by government companies and statutory bodies also included in the definition but sovereign bonds issued by government are not included.

Non – convertible Redeemable Preference Shares, Perpetual Debt Instrument, perpetual non-cumulative preference shares,

“Non – Convertible Redeemable Preference Shares’, ‘Perpetual Debt Instrument’/ ‘Innovative Perpetual Debt Instrument’ and ‘Perpetual Non – Cumulative Preference Share’ shall have the same meaning as assigned to them in the Securities and Exchange Board of India (Issue and Listing of Non-Convertible Redeemable Preference Shares) Regulations, 2013. [Regulation 2(1)(u) of SEBI (LODR) Regulations 2015]

Innovative Perpetual Debt Instrument

“Innovative Perpetual Debt Instrument” or “Perpetual Debt Instrument” means an innovative perpetual debt instrument issued by a bank in accordance with the guidelines framed by the Reserve Bank of India. [Regulation 2(1)(h) of SEBI (Issue and Listing of Non-Convertible Redeemable Preference Shares) Regulations 2013]

Non – Convertible Redeemable Preference Shares

“Non – Convertible Redeemable Preference Share” means a preference share which is redeemable in accordance with the provisions of the Companies Act, 1956 (or the Companies Act, 2013) and does not include a preference share which is convertible into or exchangeable with equity shares of the issuer at a later date, with or without the option of the holder. [Regulation 2(1)(k) of SEBI (Issue and Listing of Non-Convertible Redeemable Preference Shares) Regulations 2013]

Perpetual Non – Cumulative Preference Share

“Perpetual Non – Cumulative Preference Share” means a perpetual noncumulative preference share issued by a bank in accordance with the guidelines framed by the Reserve Bank of India. [Regulation 2(1)(l) of SEBI (Issue and Listing of Non-Convertible Redeemable Preference Shares) Regulations 2013]

Indian depository receipts

‘Indian depository receipts’ means Indian depository receipts as defined in sub-section(48) of section 2 of the Companies Act, 2013 securitised debt instruments. [Regulation 2(1)(n) of SEBI (LODR) Regulations, 2015.
“Indian Depository Receipt” means any instrument in the form of a depository receipt created by a domestic depository in India and authorised by a company incorporated outside India making an issue of such depository receipts. [Section 2(48) of the Companies Act, 2013]

Depository Receipt

Depository Receipt means a foreign currency denominated instrument, whether listed on an international exchange or not, issued by a foreign depository in a permissible jurisdiction on the back of permissible securities issued or transferred to that foreign depository and deposited with a domestic custodian and include global depository receipt as defined in Section 2(44) of the Companies Act, 2013. [Para 2(1)(a) of the Depository Receipt Scheme, 2014]

Securitised debt instruments

‘Securitised Debt Instruments’ as defined in the Securities and Exchange Board of India (Public Offer and Listing of Securitised Debt Instruments) Regulations, 2008. [Regulation 2(1)(zg) of SEBI (LODR) Regulations 2015]
“Securitised Debt Instrument” means any certificate or instrument, by whatever name called, of the nature referred to in sub-clause (ie) of clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 issued by a special purpose distinct entity. [Regulation 2(1)(s) of SEBI (Public Offer and Listing of Securitised Debt Instruments) Regulations, 2008]

Units issued by mutual funds

“Unit” means the interest of the unit holders in a scheme, which consists of each unit representing one undivided share in the assets of a scheme. [Regulation 2(z) of the SEBI (Mutual Funds) Regulations, 1996]

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