Sebi seeks 10% FPI trades in corporate bonds via RFQ platform

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The Securities and Exchange Board of India has proposed to mandate foreign portfolio investors to undertake at least 10% of their secondary market trades in corporate bonds by value through the RFQ platform of stock exchanges, according to a consultation paper.

RFQ refers to “request of quote”, an electronic platform launched in February 2020 on both the BSE and NSE. It enables multi-lateral negotiations on a centralised online trading platform, with straight-through processing of clearing and settlement, according to the regulator.

Sebi says the objective is to shore up liquidity on the RFQ platform and enhance transparency and disclosures pertaining to investments in corporate bonds (CBs). This will, in turn, encourage investment by FPIs in CBs, Sebi said.

“By acting as a single interface for price givers and price takers in the debt market from a diverse set of clients, the RFQ platform helps in enhancing the price discovery and brings pre-trade transparency in the transactions of eligible securities,” said the paper.

The markets watchdog has said the above proposal may be implemented on a quarterly basis. It has reasoned that while the overall CB investment by FPIs was low, the percentage of such trades carried out on the RFQ platform was even lower.

During FY23, FPIs carried out just 4.5% of their trades in corporate bonds through the RFQ platform, and accounted for only 0.78% of trades in corporate bonds on the platform executed by various entities regulated by Sebi/RBI/PFRDA/Irdai.

Further, while the RBI has been increasing investment limits in CBs for FPIs consistently, investments by FPIs in corporate debt has been declining. Data shows that FPIs utilised only 14.76% of the investment limit in CB as of May 31 this year.

Sebi says the RFQ platform reduces information asymmetry and enhances transparency in the corporate debt segment by providing disclosures such as term sheets, price information and market quotes, which is expected to result in better price discovery, lower costs and ease of doing business.

It has sought comments on the proposal till July 26.

“The various advantages brought in by the RFQ platform are expected to propel Indian bond markets into a higher growth phase, thereby, promoting investments in the segment by all participants, including FPIs. However, the same can be achieved if the participation on the platform is deepened and widened due to adoption by maximum number of participants, resulting in greater volume of trades,” the paper says.

Sebi has previously mandated other intermediaries to undertake a certain percentage of their secondary market trades in CBs by value on the RFQ platform. For mutual funds, it is 25% while it is 10% for PMS providers and AIFs. For stock brokers, it is 10% at present, set to be raised to 25% from the beginning of the next financial year.


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