Regulation 9 - Permissible structures for special purpose distinct entity - Securities and Exchange Board of India (Issue and Listing of Securitized Debt Instruments and Security Receipts) Regulations, 2008

CHAPTER III CONSTITUTION AND MANAGEMENT OF SPECIAL PURPOSE DISTINCT ENTITIES AND INCIDENTAL MATTERS Permissible structures for special purpose distinct entity. 9. (1) The special purpose distinct entity shall be constituted in the form of a trust the constitutional document whereof entitles the trustees to issue securitised debt instruments: Provided that originator or any of its associates shall not exercise control over the special purpose distinct entity and its trustees. (2) The instrument of trust, whether trust deed or any other constitutional document, shall be executed by the sponsor in favour of the trustees named in such instrument. (3) The instrument of trust shall contain such clauses as are mentioned in Schedule IV and such other clauses which are necessary to protect the interests of investors in the securitised debt instruments. (4) No instrument of trust shall contain a clause which has the effect of (i) limiting or extinguishing the obligations and liabilities of the trustees or the special purpose distinct entity in relation to any scheme or the rights or interests of investors; (ii) limiting or restricting or waiving the provisions of the Act, these regulations and circulars or guidelines issued by the Board; (iii) indemnifying the trustees or the special purpose distinct entity for loss or damage caused to the investors by their act of negligence or commission or omission. (5) The special purpose distinct entity and the trustee shall adopt internal procedures designed to avoid conflict of interest. (6) A special purpose distinct entity shall not raise any moneys in the form of debt or issue any debt securities other than through issue of securitised debt instruments: Provided that the restriction contained in this sub-regulation shall not apply to issue of security receipts. (7) A special purpose distinct entity shall be entitled, in terms of the trust deed or other constitutional document, to segregate the debt or receivables out of the asset pool for the purpose of servicing of any securitised debt instrument in accordance with the scheme. (8) The special purpose distinct entity shall not be dissolved until the securitised debt instruments issued under all its schemes are fully redeemed or written off in accordance with their terms of issue. (9) Trustees who are nominees of the sponsor or the originator or who are associated in any manner with the sponsor or the originator or with a company in the same management as the sponsor or originator shall not constitute more than one half of the Board of Trustees of the special purpose distinct entity, as the case may be. (10) Where the special purpose distinct entity proposes to launch multiple schemes, - (a) it shall be capable in terms of the trust deed or other constitutional document, of segregating multiple securitisation schemes; and (b) the terms of issue of securitised debt instruments proposed to be issued under each scheme or each series of such instruments shall restrict the rights of investors therein to the relevant asset pool alone. (11) The special purpose distinct entity shall not carry on any activity other than regulated activities and those incidental thereto and it shall not engage in: (a) business of lending or investment except making passive financial investments required in accordance with the scheme; (b) activities of an asset management company or portfolio manager or a mutual fund: Provided that the restriction provided in clause (a) shall not apply to (i) any trust or other body promoted by the National Housing Bank, in respect of activities undertaken by it in terms of the National Housing Bank Act, 1987 (53 of 1987); (ii) any trust or other body promoted by the National Bank for Agriculture and Rural Development, in respect of activities undertaken by it in terms of the National Bank for Agriculture and Rural Development Act, 1981 (61 of 1981); (iii) any trust set up by a securitisation company or reconstruction company in respect of activities undertaken by it in terms of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002); (iv) any securitisation undertaken by a special purpose distinct entity, which involves private placement of any instruments representing securitised debt which are not proposed to be listed on any recognised stock exchange.