SEBI permits BSE and NSE to launch Trading Platform for Corporate Bonds
Securities and Exchange Board of India (SEBI) had issued circulars on December 12, 2006 and March 01, 2007 authorizing Bombay Stock Exchange Ltd. (BSE) and National Stock Exchange of India Ltd. (NSE) to set up and maintain corporate bond reporting platforms to capture all information related to trading in corporate bonds as accurately and as close to execution as possible.
Continuing with the process of implementing the Union Budget proposals for developing an exchange traded market for Corporate Bonds, SEBI has issued a circular on April 13, 2007 permitting BSE and NSE to have in place corporate bond trading platforms to enable efficient price discovery and reliable clearing and settlement in a gradual manner.
To begin with, the trade matching platform shall be order driven with essential features of OTC market. BSE and NSE would make use of their existing infrastructure, with necessary modifications to set up the said platform with effect from July 01, 2007. The trade matching platform would be available to members of the respective stock exchanges.
With the introduction of the trading platform, orders executed through trading platforms of either BSE or NSE may not be reported again on the reporting platforms. At the option of the participants, they may also continue to trade Over the Counter, but would continue to be reported on the reporting platforms. In the initial phase, the trades would be settled bilaterally between trading parties. They may, at their option, use services of stock exchanges for clearing and settlement.
The circular also addresses the reduction of shut period which requires the stock exchanges to ensure that the same is reduced and aligned to that applicable for Government Securities within a reasonable period of time. The minimum trading value for Corporate Bonds for all entities has been reduced to Rs.1 lakh from the existing Rs.10 lakh. The stock exchanges may also have a limited segment for transactions in smaller market lots. The day count convention of Actual/Actual applicable for Government securities shall be mandatory for all new bond issues.
Subsequent to the stabilization of the trade matching system, BSE and NSE are permitted to move to an anonymous order matching system for trading of bonds within an appropriate period of time. BSE and NSE would then be required to provide clearing and settlement facility with multilateral netting and to devise an appropriate system of margining for trades done on the platform.
In addition to the above, certain amendments have also been made to the listing agreement for debentures. This includes the introduction of ECS, Direct Credit, RTGS or NEFT for payment of interest and redemption amounts and that all material modifications made to the structure of the debenture would henceforth be done only with the prior approval of the stock exchanges. The exchanges would disseminate such information on their websites.
The full text of the above circular is available on the website: www.sebi.gov.in
Mumbai
April 13, 2007