Mutual funds to do min 10% of corp bond trades via exchanges

Mumbai: The Securities and Exchange Board of India (Sebi) said on Wednesday mutual funds will have to start doing at least 10% of their total secondary market trades by value in the corporate bonds on the exchange platform. The move is part of the capital market regulator’s attempts to develop an actively-traded corporate bond market.

ET had reported on July 16 that Sebi wants companies’ bonds to be traded on exchange platforms the same way stocks and government securities are traded.

Sebi said in a circular mutual funds will trade corporate bonds by placing and seeking quotes through the ‘one-to-many’ mode on the Request for Quote (RFQ) platform of stock exchanges. One-to-many mode—a rarely used trading system—is similar to the auction process where multiple buyers can bid for one security.

“ All transactions in Corporate Bonds and Commercial Papers wherein Mutual Fund is on both sides of the trade shall be executed through RFQ platform of stock exchanges in one-to- one mode,” the Sebi circular said. “ Any transaction entered by mutual fund in Corporate Bonds in one to many mode and gets executed with another mutual fund shall also be counted for the aforesaid 10% requirement.” One-to-One mode involves transactions between two entities.

The regulator said the new rule would be effective from October 1, 2020. It is based on the recommendation of Sebi-appointed Mutual Fund Advisory Committee (MFAC)

Currently, the corporate bond platforms on the NSE and BSE are merely systems for reporting corporate bond deals. Most of the trades in the corporate bond market are decided on the phone.

In an interview with ET on July 13, Sebi chairman Ajay Tyagi said the need for having a deeper and liquid bond market has never been felt more than now in these difficult times. The fiasco at Franklin Templeton could have triggered the urgency to come up with a more lasting solution for easing the liquidity crisis in corporate bonds. Franklin announced shutting down six debt schemes and withheld withdrawals indefinitely on April 23 as the fund house struggled to sell its illiquid lowly-rated papers to meet the redemptions.

Sebi wants to develop the corporate bond platform on the lines of the Negotiated Dealing System – Order Matching (NDS-OM), an electronic trading platform for issue and trading of government securities and State Development Loans. Clearing Corporation of India (CCIL) on behalf of the RBI operates the NDS-OM.


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