The Securities and Exchange Board of India (Sebi) has directed mutual funds (MF) to ensure that a part of their trading activity in corporate bonds is done over the recently-launched platforms on the exchanges.
In a circular issued on Wednesday, the market regulator said MFs shall undertake at least 10 per cent of their total secondary market trades (by value) “through… request for quote (RFQ) platform of stock exchanges”.
This percentage shall be calculated on the basis of average value of secondary trades done in the preceding three months.
Speaking at an event organised by Federation of Indian Chambers of Commerce & Industry on Wednesday, Sebi chairman Ajay Tyagi said, “We have decided to mandate mutual funds to use this platform in a phased manner. Use of this platform by other institutional investors as well will result in better transparency and price discovery in the bond market.”
At present, trading in corporate bonds is largely done in over-the-counter mode, which is later reported to exchanges later. Tygai said that the RFQ platform was introduced to replicate this “OTC nature, but with better price discovery and transparency”.
The Sebi circular on Wednesday stated that all transactions in corporate bonds and commercial papers, wherein the MFs are on both sides of the trade, shall be executed through one-to-one mode in RFQ platform.
Effective from October 1, 2020, the debt schemes are also required to make disclosures pertaining to such transactions within “five days of every fortnight”.
The yield on the instrument shall also be disclosed along with the portfolio disclosures.
In February, NSE and BSE had launched their respective RFQ platforms for trading in debt securities.