What is a liquidity window facility? SEBI rules

A liquidity window facility is SEBI's answer to a specific complaint about Indian corporate bonds: an investor who wants out before maturity often cannot find a buyer. The facility does not create a secondary market. It puts the issuer on the other side of the trade on dates fixed in advance. This guide covers what a liquidity window facility is, who can offer one, when investors can use it, and what the issuer has to publish. It is not investment advice.

What is a liquidity window facility under SEBI rules?

The starting point is Regulation 15 of the SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021, which already let an issuer give investors a right of redemption before maturity, a put option, either to all investors or only to retail investors. Chapter XXVI builds a standard framework on top of that existing power rather than creating a new instrument.

The reasoning is set out in the chapter itself. Low secondary market activity in corporate bonds, partly because many institutional holders simply hold to maturity, left the market perceived as illiquid. Rather than trying to manufacture trading volume, SEBI wrote uniform norms for issuers willing to repurchase their own paper on a published schedule.

The facility arrived through a SEBI circular dated 16 October 2024, reference SEBI/HO/DDHS/DDHS-PoD-1/P/CIR/2024/141, and applies on and from 1 November 2024. It now sits as Chapter XXVI of the Master Circular for issue and listing of non-convertible securities, securitised debt instruments, security receipts, municipal debt securities and commercial paper, dated 15 October 2025.

Who decides whether a bond has a liquidity window?

The issuer, and only at the start. Paragraph 4 makes the facility available at the issuer's option or discretion, fixed at the time of issuance and applied on an ISIN basis. Paragraph 5 limits it to prospective issuances, through a public issue or a private placement proposed to be listed. A bond already sitting in your demat account cannot acquire a liquidity window later.

Three internal guardrails come with the choice, under paragraph 6.1. The facility needs prior approval of the issuer's board of directors. Its implementation and outcome must be monitored by the Stakeholders Relationship Committee where the entity has listed specified securities, or by the board or a board level committee for entities that are only debt listed. And it has to be objective, transparent, non-discretionary and non-discriminatory within the class of eligible investors.

That last condition is the one worth reading twice. A repurchase facility operated at the issuer's whim, favouring some holders over others, is exactly what the clause forbids.

When can investors actually exercise the put option?

After a year, on a published schedule, during a three day window.

Paragraph 6.2 bars the facility until one year has passed from the date of issuance. Two structural consequences follow: re-issuances are not permitted under an ISIN that carries the facility, and in exchange those ISINs are left out of the maximum ISIN limit an issuer is otherwise held to.

The issuer sets an aggregate limit over the tenor, in number of debt securities, and it cannot be below 10% of the final issue size. The issuer may also cap how much can be exercised in any single window. Where investor demand exceeds that sub-limit, paragraph 6.4 requires acceptance on a proportionate basis, so the overflow is scaled down rather than allocated first come first served.

Each window stays open for three working days, run monthly or quarterly at the issuer's discretion, with the schedule disclosed upfront in the offer document. Within five working days from the start of each financial year, the issuer sends notice by SMS or WhatsApp confirming whether that year's facility runs monthly or quarterly, and that notice counts as compliance with Regulation 15(6) of the NCS Regulations.

To exercise, an eligible investor blocks the securities in their demat account during trading hours and notifies the issuer through the exchange mechanism. Bids can be modified or withdrawn while the window is open. Everything blocked by the close of trading on day three counts as duly tendered. Eligible investors must hold in demat form, and the issuer decides at issuance whether the facility is open to all holders or only to retail investors.

What price does the investor get?

A valuation struck before the window opens, with a capped discount.

Debt securities are valued on T minus 1, where T is the first day of the window, and that valuation has to be displayed throughout the window on both the issuer's and the exchanges' websites. The valuation follows the Valuation chapter of SEBI's master circular for mutual funds, which Chapter XXVI cross-references as amended from time to time.

The protection sits in the next sentence of paragraph 6.8: the amount payable to the investor shall not be at a discount of more than 100 basis points on the valuation arrived at, plus accrued interest. Money reaches the bank account linked to the tendering demat account within one working day of the window closing, and settlement of the securities happens on T plus 4.

What happens to the bonds the issuer buys back?

They are not automatically cancelled. Within 45 days of the window closing or before the end of the relevant quarter, whichever is earlier, paragraph 6.9 lets the issuer sell them on the debt segment of a stock exchange, sell them directly on the RFQ platform if eligible to access it, sell them through an online bond platform, or extinguish them.

Anything the issuer resells is added back to the aggregate limit, replenishing capacity that earlier exercises used up. So the 10% floor is not necessarily a lifetime cap.

What gets disclosed publicly?

This is the part that turns a private repurchase arrangement into trackable data. Under paragraph 6.11, the issuer publishes on its website a list of ISINs carrying the facility, and for each one: issuer name, outstanding amount, credit rating, coupon rate, maturity date, valuation where available, the window schedule, the percentage of issue size covered along with the per window sub-limit, the percentage already exercised and amounts paid, the extent sold or extinguished, the percentage still unused by investors, and the extent replenished by issuer sales.

The same information goes to stock exchanges, depositories and the debenture trustee, who host it on their websites or in the centralised corporate bond database. Changes are intimated within 24 hours and reflected within one working day. Exchanges and depositories may feed it to online bond platforms for display.

Two reports close the loop: a report to the exchanges within three working days of the window closing, and, within three working days of the paragraph 6.9 deadline, an intimation to the depositories and debenture trustee about securities to be extinguished.

A liquidity window facility is voluntary, capped, delayed by a year and priced off a published valuation, which is why reading the offer document matters more here than with a plain NCD. Flock reports public regulatory filings with every claim sourced and dated. What any of it means for your money is your call to make.