New rules for online bond platforms: Sebi proposes registration as stock brokers, key details

Capital markets regulator Sebi on Thursday proposed a regulatory framework for the online bond platforms that are selling listed debt securities.

Under the proposal, bond platforms should register as stock brokers (debt segment) with the Securities and Exchange Board of India (Sebi) or be run by Sebi-registered brokers, according to a consultation paper.

This will also enhance the confidence among investors, particularly non-institutional investors, as the platforms would be provided by Sebi-regulated intermediaries.

Additionally, the stock-broker regulations will be applicable to these entities, which would govern their code of conduct and other aspects related to their operations and risk management.

"The debt securities offered for buy/ sale by the online bond platforms shall be only listed debt securities," Sebi proposed.

It has been proposed that listed debt securities issued on a private placement basis, offered for sale on bond platforms should be locked in for a period of six months from the date of allotment of such debt securities by the issuer.

"It was observed that there is an imperative need to govern the operations of these online bond platforms, keeping in mind the core objective of facilitation of efficient trading and robust investor protection norms for investors, particularly non-institutional investors," Sebi said.

The transactions executed on the online bond platforms should be routed through the trading platform of the debt segment of exchanges or through the RFQ (Request for Quote) platform of the stock exchanges, where the transactions will be cleared and settled on a Delivery Versus Payment (DVP-1) basis.

Routing their trades through the trading platform of exchanges will help in mitigating settlement risk associated with these online bond platforms as the settlement is guaranteed on a T+2 (trading plus two) basis.

In addition, it will provide an exit opportunity to the investors and a well-defined framework for redressal of investor grievances.

According to the regulator, registration of the bond platforms as stock brokers under Sebi rules will be beneficial to the market and market participants, as the standard KYC requirements will be applicable while registering clients on bond platforms.

In addition, the net worth and deposit requirements prescribed for stock brokers will ensure that the bond platform has sound and stable financial health and the applicability of the code of conduct mandated for stock brokers will ensure fairness in their dealings with clients.

They will be subjected to regulatory inspection and oversight, providing more confidence to investors and hence, will have the potential to attract more investors.

The regulator has sought comments from the public on the proposal till August 12.

The proposed regulatory framework would attempt to ensure retention of the business potential and opportunities for the bond platforms and efficient offering of services to non-institutional investors.

The suggestions come at a time when there has been a significant increase in the volume of trades undertaken on the bond platform as well as in the number of users who have transacted on the bond platform.

Debt securities can be issued either through a public issuance or on a private placement basis. A public issue of debt securities is made through the online system of the stock exchanges and depositories.

For privately placed debt securities, the issues of debt securities need to be made through the Electronic Book Provider Platform (EBP Platform).