Sebi mandates FPIs to carry 10% of corporate bonds trades via RFQ platform

In order to boost liquidity, Sebi on Monday mandated foreign portfolio investors (FPIs) to place at least 10 per cent of their trades in corporate bonds through the Request For Quote (RFQ) platform of stock exchanges.

The requirement will come into force from October 1, the Securities and Exchange Board of India (Sebi) said in a circular.

The move is aimed at increasing the liquidity on the RFQ platform and enhancing the transparency and disclosures pertaining to investments in corporate bonds, which in turn will encourage investment by FPIs in the corporate bond segment.

RFQ, which was launched on BSE and NSE in February 2020, is an electronic platform that enables multi-lateral negotiations to take place on a centralised online trading platform with straight-through processing of clearing and settlement to complete the trade.

A wide variety of debt securities are available for trading on the RFQ platform.

"With a view to increase liquidity on RFQ platform vis-a-vis trading in Corporate Bonds by FPIs, it is decided that FPIs shall undertake at least 10 per cent of their total secondary market trades in corporate bonds by value by placing/seeking quotes on the RFQ platform of stock exchanges, on a quarterly basis," Sebi said.

The regulator said it has been taking steps to increase the liquidity on the RFQ platform of stock exchanges and to enhance the transparency and disclosure pertaining to trading in the secondary market in corporate bonds.

Sebi said that it already provided a similar mandate for other intermediaries such as alternative investment funds (AIFs), portfolio management services (PMS) and stock brokers.

The framework came after the capital markets regulator issued a consultation paper in this regard last month.

While the overall corporate bond investment by FPIs is low, the percentage of such trades carried out on the RFQ platform is even lower, as per the consultation paper.

During FY2022-23, FPIs carried out merely 4.5 per cent of their total trades in corporate bonds through the RFQ platform.

Further, during the year, FPIs accounted for only 0.78 per cent of total trades in corporate bonds on the RFQ platform executed by various entities.