SEBI’s Draft Circular on SDI Trustee Disclosures – IndiaCorpLaw
[Atharva Singh and Arushi Devendra Jha are 4th year B.A. LL.B. (Hons.) students at National Law Institute University, Bhopal]
On 16 June 2025, the Securities and Exchange Board of India (“SEBI”) released a Consultation Paper on the Draft Circular proposing a bi-annual mandatory disclosure framework for trustees of Special Purpose Distinct Entities (“SPDIs”) issuing Securitised Debt Instruments (“SDIs”). To provide a brief background, SPDIs are bankruptcy-remote vehicles set up to facilitate securitisation transactions by acquiring a pool of receivables and issuing SDIs backed by those receivables. Trustees, typically independent third-party entities, are appointed to oversee the administration of the securitised asset pool, and to ensure that the interests of the investors are protected throughout the lifecycle of the instrument. In May 2025, SEBI amended the SEBI (Issue and Listing of Securitised Debt Instruments and Security Receipts) Regulations, 2008 (“the SDI Regulations”) to introduce regulation 11B, which mandates SPDIs and their trustees to furnish periodic information to the Board in a format specified by SEBI.
The Consultation Paper seeks to operationalise this requirement by prescribing detailed half-yearly disclosure formats. These include performance metrics, asset quality indicators, credit enhancements, pool characteristics, and post-securitisation modifications, among others. The proposed framework aligns with SEBI’s broader objective of promoting transparency, automated supervision, and market discipline in line with Reserve Bank of India’s (“RBI”) Master Directions on Securitisation of Standard Assets, 2021.
The rationale behind these enhanced requirements lies in strengthening transparency in India’s rapidly evolving securitisation market. While SEBI’s intent is regulatory clarity, the paper raises significant questions regarding operational feasibility and risk allocation among trustees. This post seeks to analyse the implications of the proposed disclosure framework on the securitisation market. In doing so, the post is divided into three sections. The first section sets out the legislative and institutional context behind the SDI Regulations and the role of trustees. The second explains the key features of the proposed disclosure framework and, lastly, the third section critically examines the potential operational challenges and areas of legal uncertainty.
The Regulatory and Institutional Framework of SDIs and Trustee Disclosures
The issuance and listing of SDIs in India is primarily governed by two regulatory pillars: the SEBI SDI Regulations and the RBI’s Master Directions on Securitisation of Standard Assets, 2021. While the RBI’s framework governs the origination and structuring of standard asset securitisation, the SDI Regulations are concerned with listing, trading, and disclosure obligations once the instruments enter the securities market.
A key structural element in securitisation transactions is the SPDIs. These entities are bankruptcy-remote and are constituted to acquire receivables from originators and issue SDIs backed by those assets. Importantly, SPDIs are not operationally active entities. Their affairs are managed through a trustee who acts on behalf of SDI investors. Trustees are tasked with overseeing the administration of the underlying asset pool, ensuring timely payment of cashflows, and enforcing rights in case of defaults or disruptions in servicing. Their role is therefore central to investor protection and the integrity of the securitisation structure.
Consequently, SEBI amended the SDI Regulations in May 2025 to insert regulation 11B, which introduces an explicit requirement for SPDIs and their trustees to submit half-yearly information to SEBI and the stock exchanges. This amendment stems from SEBI’s broader policy objective of aligning its disclosure regime with the RBI’s 2021 Master Directions and enhancing data-driven supervision. Prior to this, while certain disclosures were expected under listing regulations or contractual arrangements, there was no unified or detailed reporting mandate that could ensure consistent data quality across SDI issuers.
The move to mandate disclosures via regulation 11B was also prompted by market-level feedback gathered by SEBI’s working group, which had been tasked with harmonising SEBI’s regulatory regime with RBI’s securitisation framework. The absence of granular and standardised data had been a longstanding concern, particularly in the context of assessing credit quality, tracking post-securitisation performance, and identifying systemic vulnerabilities.
In effect, regulation 11B performs two functions. First, it statutorily anchors the obligation to report, placing legal accountability on both the SPDI and its trustee. Second, it allows SEBI to prescribe the manner, content, and format of such disclosures, creating room for prescriptive and evolving reporting templates. This is the precise gap the Draft Circular seeks to fill.
It must be noted here that the trustee’s obligation is not simply clerical or ministerial. By virtue of regulation 11B, the trustee is expected to exercise oversight over the functioning of the SPDI, monitor the performance of receivables, and disclose any material events that may affect cashflows. This implicitly requires the trustee to have systems in place to continuously monitor credit metrics, default and recovery trends, and to track modifications to loan terms post-securitisation. The shift, therefore, is from passive custodianship to an active fiduciary responsibility grounded in data transparency and regulatory accountability.
Disclosure Framework under the Consultation Paper: A Shift in Form, not Standard
Having set out the statutory foundation introduced by regulation 11B, this section will examine the key elements of the Consultation Paper issued by SEBI on the Draft Circular mandating disclosure requirements for SDIs. While the Draft Circular appears to introduce a comprehensive and standardised biannual disclosure regime for trustees of SPDIs, it does not substantially alter the underlying expectations placed on them. What it does, however, is attempt to bring consistency and systematised reporting into a space that has long relied on fragmented, transaction-specific, and often non-comparable, disclosures.
The operative mechanism under the Draft Circular is the bifurcation of reporting obligations into two formats: Annexure I for SDIs backed by loan-related exposures (such as term loans, credit facilities, and listed debt securities), and Annexure II for SDIs backed by other asset types (such as trade receivables). These formats prescribe a detailed matrix of performance indicators, including weighted average maturity, delinquency ratios, credit enhancements, prepayment behaviour, and industry-wise distribution. In addition, Annexure III sets out illustrative calculation methods to assist trustees in standardising key metrics such as pool maturity, average default rate, and asset pool ratings.
On the face of it, these appear to be targeted at improving market transparency. However, a closer look at the design of the Draft Circular reveals that it assumes an unproblematic capacity on the part of trustees to collect, validate, and report granular loan-level data. While the Draft Circular seeks to institutionalise disclosure formats, it does not engage with the more difficult question of how trustees are expected to verify data provided by servicers or originators, especially where access is limited or delayed.
Moreover, the Draft Circular does not address the risk allocation between the SPDI and the trustee in the event of reporting lapses. It is the trustee that is identified as the reporting entity under the draft, yet the instruments themselves are originated, structured, and serviced by a different set of actors. This creates a situation where the entity legally responsible for disclosures is not necessarily the one with operational control over the underlying data. The Draft Circular does not clarify whether trustees are to act as mere conduits for originator-reported information, or whether they are required to apply an independent layer of review and judgment. This lack of definitional clarity may give rise to regulatory arbitrage, where trustees are held accountable without corresponding powers of oversight.
An additional concern arises from the timelines prescribed under the Draft Circular. Trustees are required to furnish disclosures within 21 days from the end of each half-year period (i.e., by April 21 and October 21 each year). While the timeframe may appear reasonable in theory, it does not account for scenarios involving multi-originator structures,delayed servicer reconciliations, or instances where asset pools are diversified across jurisdictions and asset types. In such cases, data collation and validation could itself consume the majority of the reporting window. The Draft Circular remains silent on whether provisional disclosures are permitted or what the consequences of delayed submissions would be.
Finally, the format-based approach in the draft does not leave much room for qualitative disclosures, even in cases of material events or structural deterioration. Trustees are expected to fill out predefined data points, but the obligation to contextualise those numbers, for instance in case of rising delinquency or unusual restructuring activity, is absent. This restricts the ability of disclosures to function as early-warning tools for regulators or investors. It also places disclosure and transparency as synonyms. However, it is pertinent to realise that raw data devoid of narrative may not sufficiently convey the underlying credit dynamics of the transaction.
All these areas of concern reflect an emphasis on uniformity of form, without a parallel focus on functional accountability. The next section will examine how this approach, if not recalibrated, may pose compliance and legal challenges for trustees which might be counterproductive to the intended purpose of introducing the framework.
Compliance Risks and Legal Exposure: A Misalignment of Form and Function
The role of trustees in securitisation transactions has long been grounded in fiduciary principles. This is reflected in regulation 18 of the SDI Regulations, which requires trustees to protect the interests of investors and take necessary steps to resolve issues that may adversely impact their rights. In effect, the trustee is envisaged not as a passive administrator, but as a supervisory counterweight to the originator’s operational control. This framing aligns with the logic of fiduciary design. Much like independent directors in corporate governance frameworks, trustees are insulated from day-to-day transactional incentives and are expected to provide a layer of oversight that is impartial and investor-centric. SEBI’s move to formalise this role through the disclosure obligations under regulation 11B is, therefore, consistent in spirit. However, the way these obligations are operationalised under the proposed framework appears to dilute that very premise.
At the core of the problem lies the Draft Circular’s failure to distinguish between control and responsibility. The draft framework assigns disclosure liability entirely to the trustee, yet it does not account for the fact that trustees operate without operational control over the servicing and management of the securitised pool. In practice, trustees rely on servicers or originators to supply asset pool performance data. These inputs are not always available within a predictable timeline, particularly in structures involving multiple originators or diversified receivables. The Draft Circular, however, offers no guidance on whether delayed disclosures caused by third-party non-cooperation would be treated as non-compliance. In the absence of such clarification, trustees are exposed to a risk of regulatory sanction for failures that lie beyond their operational control. Where regulatory obligations are divorced from actual capacity, compliance becomes structurally fragile.
In such cases, the risk of breach is not theoretical. Under the SEBI (Intermediaries) Regulations, 2008, failure to comply with obligations under the SDI Regulations may invite enquiry, censure, or even suspension, of registration. Yet, the Draft Circular does not provide any safe harbour or materiality threshold for determining non-compliance. There is no clear distinction between reporting delays caused by a system-wide event (e.g., default moratoria or servicer insolvency) and those attributable to genuine oversight of the SDI trustee. This exposes trustees to legal action for what may in effect be procedural lapses, not substantive failures. In doing so, the framework adopts a strict liability posture while operating in a regime that otherwise depends on contextual judgment.
Scholars have argued that fiduciaries are not only expected to act in good faith but must also exercise informed judgment where discretion is permitted. In securitisation, this means that trustees should be able to scrutinise deviations in cashflow patterns, flag deterioration in pool performance, and question inconsistent reporting. The Draft Circular, however, treats disclosure as a mechanical act, with little regard for the exercise of qualitative judgment. No provision is made for explanatory notes, deviation reporting, or the flagging of structural risks that may not be captured in tabular formats. This represents a shift from the fiduciary conception of the trustee to a compliance-driven notion of disclosure.
Viewed in this context, the regulatory position under the Draft Circular appears misaligned with the trustee’s expected role under the broader securitisation regime. While the law prescribes them to be vigilant fiduciaries, the disclosure architecture reduces their function to that of a reporting intermediary. This divergence may erode the very safeguards that the disclosure regime seeks to establish.
Thus, much like the exclusive reliance on board-level knowledge in the case of independent directors, the Draft Circular’s emphasis on form-driven disclosures without capacity-based calibrations may give trustees an unintended exit route from meaningful oversight. At the same time, it burdens them with legal exposure without enabling the practical conditions required to meet it. The result is a compliance framework that appears rigorous on paper, but functionally undermines the trustee’s role as an effective fiduciary in India’s securitisation ecosystem.
Conclusion
As shown in the first part, the introduction of regulation 11B signalled a shift toward trustee-centric transparency in securitisation oversight. However, as demonstrated in the subsequent parts, the Draft Circular operationalises this shift in a manner that prioritises form over function—placing legal responsibility on trustees without equipping them with the control or flexibility to discharge it. By ignoring the structural realities of securitisation transactions, SEBI risks converting fiduciary oversight into procedural compliance. This post has argued that without realignment between responsibility, capacity, and regulatory design, the Draft Circular may undermine, rather than strengthen, trustee accountability. Its future evolution will be critical to watch.
– Atharva Singh & Arushi Devendra Jha