Online Bond Platforms Providers: SEBI formulates regulatory and registration framework - What is OBPP? How to invest in these bonds? How its need arose?

Securities and Exchange Board of India (SEBI) has come up with a regulatory and registration framework for Online Bond Platforms Providers (OBPP). 

In a circular issued on November 14, RBI said that in the past few years, there has been an increase in the number of Online Bond Platforms (OBPs), offering debt securities (financial assets that are created when one party lends money to another) to non-institutional investors, ones who do not have to register with SEBI to apply for shares.

"Earlier the Online Bond Platforms were not under the regulatory purview of SEBI, while OBPs provide an avenue for investors, particularly non-institutional investors to access the bond market, their operations were outside SEBI’s regulatory purview,” the circular stated. 

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What is an Online Bond Platform? 

- Online Bond platforms ensure digital transactions in a secure environment. Some carry out transactions on the stock exchange, while others transfer money and securities using the services of clearing corporations -both are secure modes of transaction involving little counterparty risk.

- Bond platforms offer government securities, high-quality corporate bonds, instruments with AA and lower ratings, market-linked debentures, and even perpetual bonds.

Expert’s opinion on SEBI’s regulatory framework for Online Bond Platform Providers

Why was there a need for a framework? 

According to Aditi Mittal, Co-founder, IndiaBonds, there was a need for regulatory guidelines so that there can be a standardized approach.

“Some players in the electronic bond industry either do not have a lot of experience in the debt market or use an e-commerce approach to sell bonds without proper disclosure. So there is a risk of mis-selling to the end customers on products that may not be a suitable basis for their risk profiling. Thus, regulatory guidelines were necessary to bring a framework for all participants which standardized disclosures, compliances, grievance redressals, and transaction processes.”

Is the SEBI framework in line with the interest of Online Bond Platform Providers? 

“The framework appropriately sets a correct code of conduct for growing this industry in the safe interest of investors. One thing that needs more work on is the establishment of robust infrastructure and processes by exchanges to ensure that the OBPP business can be facilitated without interruption as this needs more clarity and testing, “ said Aditi Mittal.

How to invest in online bonds?

Step 1: The investor needs to choose a bond he/she wants to invest in 

Step 2: Choose an online bond platform to invest in

Step 3: Fill out the details on the bond platform to get started. Investors will require a PAN card, bank account details, proof of address, Demat details, and a photo

Step 4: Receiving a call from a bond manager - The bond manager will call the investor and guide him/her through the whole process of investing 

Step 5: After understanding all the details, the investor will have to fulfil the Know Your Customer (KYC) formalities and make the payment 

Step 6: The clearinghouse will transfer the bond to the investor.

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