Macro/Finance Group, NIPFP

Convertible securities are a curious mix of debt and equity - more specifically, debt that gets converted into equity. From the perspective of the Regulator, the question is whether these securities must be regulated as debt or equity. SEBI issued a discussion paper seeking public comments on its proposed approach for regulating convertible securities. In our response to the discussion paper, we recommended:

1. that the securities cannot be treated as debt securities, as their price depends on the shares into which they will stand converted;
2. minimal intervention approach - regulating only what is necessary to prevent market failure in the area of convertible securities.