On Thursday, Capital markets regulator Sebi proposed a regulatory framework for online bond platforms that sell listed debt securities.

According to the consultation paper, under the proposal, the bond platform should be registered with the Securities and Exchange Board of India (SEBI) as a stockbroker (debt sector) or be operated by a broker registered with Sebi.
This will also boost investors’ confidence, especially non-institutional investors, as Sebi-regulated intermediaries provide these platforms.

In addition, stockbroker regulations will apply to these entities, which will govern their code of conduct and other aspects related to their operations and risk management.

“Debt securities bought and sold through online bond platforms can only be listed debt securities,” Sebi advises. Listed bonds that are privately issued on the bond platform are locked for six months from the date the issuer allocates the bonds.

“It has been observed that there is an urgent need to manage the operations of these online bond platforms, keeping in mind the core objective of facilitating efficient trading and strong investor protection norms for investors, especially non-institutional investors,” Sebi said.

Transactions conducted on the online bond platform shall be conducted through the bond board trading platform of the stock exchange or the RFQ (request for quotation) platform of the stock exchange, and the transaction shall be cleared by delivery payment (DVP-1) basis.

Trading through the exchange’s platform will help reduce settlement risks associated with these online bond platforms, as settlement is guaranteed on a T+2 (trade plus 2) basis. In addition, it will provide investors with exit opportunities and a clear framework for addressing investor dissatisfaction.

According to the regulator, registering bond platforms as stockbrokers under Sebi rules will benefit the market and market participants as standard KYC requirements will apply when registering clients on bond platforms.

In addition, the broker’s net worth and deposit requirements will ensure that the bond platform has a sound financial position. The applicability of the broker’s code of conduct will ensure the fairness of its client transactions.

They will be subject to regulatory scrutiny and oversight, providing investors with more confidence and therefore likely to attract more investors. Regulators have until August 12 for public comment on the proposal.

The proposed regulatory framework will seek to ensure that bond platform commercial potential and opportunities are preserved and that non-institutional investors are effectively served. These recommendations come when trading volumes on the bond platform and the number of users trading on the bond platform have increased significantly.

Debt securities can be issued through public offerings or private placements. Public offerings of debt securities are conducted through the online systems of stock exchanges and depository institutions. For private placement bonds, the bond issuance must be done through the eBook Provider Platform (EBP Platform).