Sebi Proposes New Bond Distribution Channel, Tighter Ad Rules To Improve Retail Participation In Bond Market

The Securities and Exchange Board of India (Sebi) proposed a new distribution framework to expand retail access to corporate bonds and other fixed-income products, particularly in smaller cities and rural areas.

Under the proposal issued through a consultation paper dated August 21, Fixed Income Channel Partners (FICPs) will work with Online Bond Platform Providers (OBPPs) to distribute permitted fixed income securities. They will assist investors with onboarding, KYC, documentation and transactions.

The proposal comes as India's corporate bond market has grown sharply. Outstanding corporate bonds have increased from around Rs 17.5 lakh crore at the end of FY15 to more than Rs 60 lakh crore as of July 31, 2026, according to Sebi data. Listed corporate bonds account for around Rs 46 lakh crore, or 76.6 per cent, of the total.

Debt markets raised Rs 9.1 lakh crore in FY26, almost twice the amount raised through equity. However, retail participation remains limited, with institutional investors accounting for a large share of the market.

Sebi said online bond platforms have helped increase retail participation. Trades on the Request for Quote platform rose from 2.76 lakh in FY25 to 17.84 lakh in FY26, a 546 per cent increase.

The regulator, however, said there remains a "structural gap" in reaching investors in Tier II, Tier III and rural areas.

Sebi has proposed a model similar to the mutual fund distributor framework. "Keeping in view the impact of MFD model, it was felt that a similar distribution framework could support the development of the fixed income securities market," it said.

Who Can Become An FICP

FICPs can be individuals or non-individual entities. They will have to be enlisted with a recognised stock exchange.

Individuals must be Indian citizens aged at least 18 years and have passed Class 12 or an equivalent examination. They must have a clean record and meet Sebi's integrity and solvency requirements. They will also need the NISM-Series: Fixed Income Securities Certification.

Partnership firms and companies can also become FICPs. At least one partner, director or employee involved in distribution must hold the required NISM certification.

Stock brokers that are not registered in the debt segment of a stock exchange can also act as FICPs.

Existing mutual fund distributors registered with AMFI can apply without paying the enlistment fee. They will still need the relevant NISM certification.

FICP enlistment will be valid for three years. Exchanges will prescribe nominal enrollment and renewal fees. FICPs will also have to follow a common code of conduct and submit half-yearly compliance disclosures.

OBPPs To Be Responsible For FICPs

OBPPs will have to conduct due diligence before appointing FICPs. This will include Know Your Distributor checks and in-person verification. An FICP can work with multiple OBPPs. Each appointment will require a written agreement covering responsibilities, confidentiality and commission sharing.

OBPPs will be responsible for monitoring their FICPs and their employees. "The OBPPs shall be responsible for all acts of omission and commission of the appointed FICP(s) and/or their employees relating to the distribution of fixed income securities," Sebi said.

OBPPs will have to verify the FICP's exchange enrollment and NISM certification. They will also have to conduct risk-based inspections and maintain details of clients mapped to each FICP.

The platforms will have to provide training before onboarding an FICP and conduct annual training thereafter. They will also have to monitor suspicious activity, investigate recurring complaints and maintain the security of client data.

Complaints against FICPs should be resolved within 21 calendar days.

Sebi has also proposed a ban on sales-linked incentives. OBPPs will not be allowed to offer gifts, vouchers, gadgets or entertainment to FICPs for achieving sales targets. FICPs will also not be allowed to distribute unsecured perpetual debt instruments such as AT1 bonds.

FICPs Cannot Handle Investor Money

FICPs will only act as a distribution and support channel. They can assist with onboarding, KYC, documentation and transactions. They will have access to the OBPP platform to display products, while client orders will be routed directly through the OBPP.

FICPs cannot handle client funds or securities. They cannot receive or pay money or securities through their own accounts. They also cannot issue deal slips, contract notes or invoices.

Sebi has proposed safeguards against mis-selling. FICPs will not be allowed to recommend products or OBPPs based on financial incentives. They will also have to avoid aggressive sales practices and conflicts of interest.

Commission Capped At 2.5 Per Cent

FICPs will receive remuneration only from the OBPPs that appoint them. They cannot charge investors directly. Their remuneration will come through commission sharing from brokerage, fees or other income earned by the OBPP.

Sebi has proposed a cap of 2.5 per cent on commissions, fees or brokerage charged to clients, based on the value of the investment.

Exchanges To Maintain FICP Database

Stock exchanges will assign an enlistment number to every FICP and maintain a database containing details such as PAN, associated OBPPs, withdrawal of enlistment and disciplinary action. Most of these details will be made available on exchange websites, although PAN details will remain private.

Exchanges can take disciplinary action against FICPs for misconduct or regulatory violations. They can also cancel or withdraw their enlistment after following due process.

An FICP can also voluntarily surrender its status.

No Investor Protection Fund Cover

Sebi has proposed that complaints against FICPs will not be covered by mechanisms administered by Sebi or stock exchanges.

Investors will therefore not have access to the Investor Protection Fund or Settlement Guarantee Fund for such complaints.

Stock exchanges will prescribe the FICP code of conduct in consultation with the OBPP Association. The code will cover conduct, fiduciary responsibilities, compliance, integrity, fairness and ethics.

Sebi has invited comments on 12 aspects of the proposed framework until September 11, 2026.

Sebi Proposes Stricter Ad Rules For Online Bond Platforms

Meanwhile, Sebi, through another consultation paper dated August 21, also proposed tighter advertising rules for online bond platforms to curb misleading claims and fear of missing out (FOMO)-driven marketing.

Under the proposed code, bond advertisements will have to carry a standard risk warning and disclose details such as the issuer, tenor, credit rating, security status, price and yield to maturity. The use of terms such as “predictable returns” and “passive income” will face restrictions, while claims such as “high yield” and “high returns” will be prohibited.

Sebi has also proposed specific disclosure rules for market-linked debentures and restrictions on platforms advertising their own holdings. Celebrity endorsements will continue to be barred.

Sebi has invited public comments on the proposals until September 11, 2026.