Summary of this article
Liquidity in bond markets need to improve to improve depth, says Sebi chief
Need change in regulations to distinguish bond brokers from stock brokers
Investor awareness is also needed to increase participation in the market
Bond brokerages need to be brought under the scope of regulation as a separate segment of the market in order to deepen the bond market and bring in more liquidity in the bond market, said Tuhin Kanta Pandey, chairman of the Securities and Exchange Board of India, on Friday. Liquidity in the bond market remains a big challenge in India, Pandey said.
The biggest challenge that we have is liquidity in the market because it (bond market) is linked to the maturity market, and unless the people are there of different kinds who are prepared to exit at different points of time with certainty people won't get in (to trade),” Pandey said speaking at the National Conclave of India Reits Association in Delhi. “We also have to slightly change the regulations in a manner where we are treating the brokers of the bonds in a different way than the brokers of the stocks.”
The markets regulator had allowed bond issuers to exercise put options on the bonds at the time of issuance, to increase trade in the bond market, Pandey said. However, many issuers have refrained from exercising the put option, which continues to limit market liquidity, he said.
Pandey said that the development in India’s bond market with a platform that aids in price discovery of a particular bond was a positive step. “If you look at the portion of bank credit, what it was before five years and now there has been a steep (growth in bond market)…you have Rs. 87 trillion there and you have a Rs. 55 trillion there as outstanding bank credit to outstanding corporate bonds,” Pandey said. “So, certainly outstanding corporate bonds are catching up with the bank credit quite fast.”
Pandey also said that the regulator had lowered the threshold for investing in a bond to Rs. 10,000 to increase participation of a wider segment of investors. Over the past few years, several online bond platform providers have emerged. SEBI has also brought these platform providers under its regulatory purview to safeguard investor security. These online platforms have also democratized and increased access to a wider range of investors, especially retail investors, to invest in the debt segment, Pandey said.
For retail investors, while online bond trading platforms provide easy access, it is important to note that Sebi on Wednesday had issued a public notice warning investors to be cautious and avoid any transactions through unregistered online bond platforms. Investors should verify the registration status of these online platforms before entering into a transaction, and deal only with Sebi-registered entities for safeguarding their interests. The regulator had banned certain platforms last year from offering securities for operating without proper registration.
Pandey also said that increasing investor awareness was necessary to bring in more investors into the bond market.
