SEBI paper suggests regulations for platforms that trade bonds online

22 Jul 2022 , 09:49 AM

A stricter regulatory framework for online bond trading platforms was suggested in a discussion paper published by the Securities and Exchange Board of India (SEBI) on July 21.

In the discussion paper, SEBI said that “issues pertaining to bond platforms were reviewed in SEBI’s Corporate Bonds & Securitization Advisory Committee (CoBoSAC).” According to the talks, it was noted that there is a pressing need to regulate the activities of these online bond platforms, bearing in mind the primary goal of facilitating effective trading and strong investor protection requirements for investors, particularly non-institutional investors.

Online bond platforms shall register as stock brokers (the debt segment) with the market regulator, according to SEBI’s proposed regulations, or be managed by brokers who are registered with SEBI. These organizations will also be subject to the stock-broker regulations, which will control their code of conduct and other elements of their operations and risk management, according to the market regulator.

Additionally, SEBI has suggested that the only securities made available for purchase or sale by these online bond marketplaces be listed as debt instruments. In addition, listed debt instruments offered for sale on bond platforms and issued on a private placement basis must be locked in for a period of six months from the day the issuer allots the securities.

SEBI observed that investors’ interest in fixed deposits has decreased as a result of the historically low-interest rates. Additionally, investors’ technological aptitude has increased as a result of the emergence of digitalization and the expanding use of the internet, making them more tech-savvy.

The debt component of the exchanges’ trading platform is to be used for transactions made on the online bond platforms, according to SEBI. This is generally done to reduce settlement risk.

As an alternative, SEBI stated that the transactions carried out through the online bond platforms might be forwarded through the so-called Request for Quote, or RQF, a platform of the stock exchanges, where they would be cleared and settled on a Delivery Versus Payment (DVP-1) basis.

Additionally, the platforms must display a list of the debt securities that are currently on the market as well as their ratings, risk factors, and other pertinent data on their websites. The new regulatory framework is open for public comment until August 12th, the market regulator stated.