AMC Repo Clearing Limited (ARCL), Corporate Debt Market Development Fund (CDMDF) and Guarantee Scheme for Corporate Debt’ (GSCD)

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AMC Repo Clearing Limited (ARCL): 

LPCC has been set up with the purpose of clearing and settlement of corporate bond repo transactions and to develop an active repo market, which will, in turn, improve liquidity in the underlying corporate bond market. This institution will create a vibrant corporate bond repo market that allows market makers to access cost effective funding for their inventory, that allows holders of bonds to meet their short term liquidity needs without having to liquidate their assets and the opportunity to entities with short term surpluses to deploy their funds in a safe and efficient manner, can all be achieved through this institution.

Corporate Debt Market Development Fund (CDMDF) and Guarantee Scheme for Corporate Debt’ (GSCD):

The Department of Economic Affairs, Ministry of Finance, Government of India, has notified the establishment of ‘Guarantee Scheme for Corporate Debt’ (GSCD) for the purpose of providing guarantee cover against debt to be raised by Corporate Debt Market Development Fund (CDMDF) which will act as a backstop in the corporate debt market, in times of market dislocation. The genesis of backstop facility was set forth as part of the Union Budget 2021-22 announcement, wherein the Central Government, with the aim to develop the corporate debt market in India announced:
“To instill confidence amongst the participants in the Corporate Bond Market during times of stress and to generally enhance secondary market liquidity, it is proposed to create a permanent institutional framework. The proposed body would purchase investment grade debt securities both in stressed and normal times and help in the development of the Bond market”.
The GSCD is envisaged to be managed by the Guarantee Fund for Corporate Debt (GFCD), a Trust Fund formed by DEA with a corpus of Rs 310 crore. The GFCD will be managed by National Credit Guarantee Trustee Company Ltd. (NCGTC), a wholly owned company of the Department of Financial Services (DFS), Ministry of Finance, Government of India.  The Trust would provide guarantee cover for loans not exceeding Rs. 30,000 crore, to be raised by CDMDF during times of market dislocation. NCGTC will give the guarantee as a standing facility, initially for 15 years. The SEBI Board shall decide the trigger of debt market disruption warranting the Backstop Facility to operate in times of market dislocation and consequently the need for activation of the guarantee by the NGCTC.
CDMDF is notified as an Alternative Investment Fund (AIF) in the form of a Trust under SEBI (AIF) Regulations. It would purchase investment grade debt securities both in stressed and normal times and help in development of the bond market. The units of CDMDF shall be subscribed by Asset Management Companies (AMCs) of Mutual Funds (MFs) and “specified debt-oriented MF Schemes. Hence the issue of moral hazard is also addressed by way of ensuring contributions by AMCs and the Mutual Fund schemes.
In times of market dislocation, CDMDF shall purchase and hold eligible corporate debt securities from the participating investors (i.e., specified debt-oriented MF schemes to begin with) and sell as markets recover. The Scheme will act as a key enabler for facilitating liquidity in the corporate debt market and to respond quickly in times of market dislocation.

PIB

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