Sebi Sees Market Making, Bond Indices as Key to Deepening Secondary Debt Market

Mumbai: Markets regulator Sebi Chairman Tuhin Kanta Pandey on Thursday said a market-making framework and trading of bond indices on exchanges are among the measures being considered to deepen liquidity in the secondary debt market.

Pandey said the corporate bond market has traditionally been characterised by investors holding securities until maturity, making it important to bring in more participants and encourage secondary-market trading.

“Actually this market is more like hold to maturity. But how do we encourage it? The first one which we have introduced was the RFQ (Request for Quote),” Pandey said here.

He said retail participation in the bond market has been facilitated through online bond platforms, which make inventory available to retail investors. The minimum investment amount has also been reduced to Rs 10,000.

“More such will come. I think awareness about bonds also needs to come,” he said, adding that the number of trades and exchange-based activity in bonds has increased significantly.

However, institutional investors continue to hold bonds largely in the over-the-counter (OTC) market and often retain them until maturity, Pandey said.

“An important factor will be market-making framework. That is more on our agenda,” he said.

Another measure under consideration, Pandey said, is allowing bond indices to be traded on exchanges.

“RBI in principle is in agreement and they have given some draft guidelines and hopefully they finalise it and trading can happen on bond indices,” Pandey said.

He also referred to instruments such as total return swaps and said the debt market needed a greater diversity of participants, including primary dealers, banks and retail investors.

“Generally seeing that there are lots of bonds and lot of trading around bonds and then the secondary market around bonds, we need also more and more diverse players to come,” he said.

Sebi also proposed doing away with the mandatory listing of outstanding unlisted NCDs for entities seeking to list debt securities, saying the existing requirement adds operational challenges, including ISIN limits and covenant monitoring, as well as compliance costs, while disclosures are largely common across different debt series.

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