The capital market regulator Securities and Exchange Board of India (Sebi) on Thursday, March 19 proposed several amendments to the rules for the Electronic Book Provider (EBP) and Request for Quote (RFQ) platforms.
Sebi has proposed several changes to enhance the efficiency of the corporate bond market. Read on to learn what amendments the regulator has proposed
The capital market regulator Securities and Exchange Board of India (Sebi) on Thursday, March 19 proposed several amendments to the rules for the Electronic Book Provider (EBP) and Request for Quote (RFQ) platforms.
The proposed amendments aim to enhance transparency, efficiency, and liquidity in the corporate bond market.
One of the major proposals include lowering the threshold for mandatory use of the EBP platform for private placements from Rs 50 crore to Rs 20 crore.
Sebi also wants to expand the EBP platform's use to Investment Infrastructure Trusts (InvITs) and Real Estate Investment Trusts (REITs). For private placements of units in these trusts above Rs 1,000 crore, issuers will be required to use the EBP platform.
These changes are meant to improve liquidity and encourage more market participation by simplifying and clarifying the process.
Another change is that the EBP platform will be closed on bank holidays. This ensures there’s no confusion or disruption in the bidding process on days when the market is closed.
Sebi has also proposed changes to the anchor investor allocation. Currently, issuers have some flexibility on how much they allocate to anchor investors, but the new rules would set limits based on the rating of the instrument. For example, for AAA/AA+/AA-rated instruments, the anchor allocation can be up to 30 per cent of the base issue size, while for A+/A- rated instruments, it can go up to 40 per cent, and for others, up to 50 per cent.
Further, Sebi has proposed that anchor investors must confirm their participation on the EBP platform by the day before the issue (T-1 day). If any anchor investor does not confirm, their portion will be added back to the base issue size. Details of the anchor investors, including how much was allocated to them, will also need to be disclosed on the platform along with the Placement Memorandum and term sheet.
There is also a push to standardise the format for post-bidding disclosures. Sebi wants to ensure that all the relevant details about the issuance, such as the bidding date, issuer name, ISIN, credit ratings, coupon rate, maturity date, and other key information, are disclosed on the EBP platform by the end of T-day.
Sebi has also proposed reducing the greenshoe option limit from five times the base issue size to three times the base issue size.
For the setup of the EBP platform, Sebi has suggested shortening the timeline for in-principle approval from T-2/T-5 days to T-2/T-3 days. The settlement timeline for EBP platforms is also set to be reduced to T+1, meaning the settlement should be completed within one day after the issue. Non-EBP platforms, however, will still have T+2 for settlements.
Sebi is also looking to speed up the listing process. For EBP platforms, the listing will need to be completed within two days after the issue (T+2), and for non-EBP platforms, it will need to be completed within three days (T+3).
For issues exceeding Rs 1,000 crore, Sebi has proposed making open bidding mandatory.
Finally, Sebi has proposed to simplify the allotment process by eliminating "time" from the "price-time priority" and "yield-time priority" methods. Instead, bids will be sorted by price or yield, and if multiple bids are the same, the allotment will be made on a pro-rata basis.
The proposed amendments to the EBP and RFQ platforms by Sebi aim to address long-standing issues of inefficiency and lack of transparency in the corporate bond market.
Earlier, the price discovery for issue of privately placed debt securities used to happen either over the telephone among identified investors and issuers with the help of arrangers or by physical bids sent to the issuer by investors or by submitting individual bids on the portal provided by the issuer.
These methods lacked transparency, as most of the investors were brought in by the arrangers appointed by the issuer, and few investors approached the issuer directly. This resulted in many market malfunctioning like poor price discovery, arrangers taking a significant portion of the issue on their books and down-selling it without disclosing the price at which the securities were bought.
To resolve these issues, SEBI introduced the EBP platform in 2016 to streamline the issuance process and enhance transparency in pricing.
However, after receiving feedback from stakeholders, Sebi realised that further improvements were needed to make the bond market more efficient and transparent.
On the secondary market side, Sebi had launched the RFQ platform in 2020 to make corporate bond trading more electronic and transparent, moving away from the traditional Over-The-Counter (OTC) deals. Initially, only institutional investors could use the platform, limiting liquidity and the ability to discover fair prices. To fix this, Sebi opened up the platform to retail investors in 2023, allowing them to access the market through brokers. This move was aimed at making the bond market more inclusive, helping ensure better price discovery and more transparency for everyone involved.
These changes are part of Sebi’s broader efforts to modernise the corporate bond market, improve its efficiency, and open it up to a wider range of investors.