According to SEBI, the new norm that will come into effect from January 1, 2023, is expected to result in enhanced participation by the public at large as well as in the deepening of the secondary market in corporate bonds.
Capital markets regulator SEBI on Thursday, October 20, said it has allowed stock brokers registered under the debt segment of the stock exchanges to place or seek bids on the Request for Quote (RFQ) platform on behalf of clients, in addition to the existing option of placing bids in a proprietary capacity.
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According to the Securities and Exchange Board of India (SEBI), the new norm that will come into effect from January 1, 2023, is expected to result in enhanced participation by the public at large as well as in the deepening of the secondary market in corporate bonds.
RFQ is an electronic platform that enables multilateral negotiations to take place on a centralised online trading platform with a straight-through processing of clearing and settlement to complete trades.
Back in February 2020, pursuant to approvals from SEBI, both the National Stock Exchange of India Ltd and BSE Ltd launched RFQ platforms, as an extension of their existing trade execution and settlement platforms, to bring transparency to 'over the counter' deals in corporate bonds, which were negotiated bilaterally.
The platform provides participants a range of options to seek a quote and to respond to a quote, while keeping an audit trail of all interactions i.e. quoted yield, mutually agreed price, deal terms, etc. The quotes are bilaterally negotiated between the counterparties.
Currently, the RFQ platform runs as a participant-based model, wherein all regulated entities, listed corporate bodies, institutional investors and all Indian financial institutions are eligible to register, access, and transact.
To enhance liquidity on the RFQ platforms of the stock exchanges, SEBI has mandated registered mutual funds and portfolio management services to undertake a specified percentage of their total secondary market trades in corporate bonds through the RFQ platform of stock exchanges.
IRDAI has also prescribed similar stipulations for insurers. Since its introduction, the percentage of RFQ trades to total trades in the bond market has been growing and now stands around 30 percent.
The regulator has been receiving representations from market participants to permit stock brokers to place bids on behalf of their clients to facilitate wider market participation in the corporate bond market. Hence, it has been decided to allow stock brokers to place bids on the RFQ platform.
(Edited by : Shoma Bhattacharjee)