SEBI: Corporate Bond Transaction via RFQ Platform

The Securities and Exchange Board of India (SEBI) has introduced new rules for transactions through the Request for Quote (RFQ) platform in an effort to increase liquidity and transparency in the corporate bond market. With the help of these rules, stock brokers will be more likely to use the RFQ platform to post quotes for corporate bond trades and to participate more actively.

Participants can request and provide quotes for a variety of securities, including corporate bonds, using the RFQ platform, a trade execution system. As a participant-based model, it was introduced, allowing institutional investors, regulated entities, listed corporate bodies, and Indian financial institutions to register, access, and transact. Participants can request quotes and give them back on the platform using the RFQ protocol, and all interactions are kept on record as an audit trail.

Stock brokers are required by SEBI to conduct a minimum portion of all of their corporate bond secondary market trades through the RFQ platform. Beginning on July 1, brokers are required to execute at least 10% of their value trades on the RFQ platform. By April 2024, this percentage will have gradually risen to 25%. Trades carried out in one-to-one (OTO) or one-to-many (OTM) RFQ modes, specifically for the broker's proprietary capacity, are considered in the calculation for compliance.

By encouraging more participation on the RFQ platform, the new guidelines seek to increase market liquidity for corporate bonds. Market participants can gain from better liquidity and price discovery by enabling a greater volume of trades through the platform. The guidelines also encourage openness and disclosure in the corporate bond secondary market, which boosts investor confidence. The fact that these rules have an impact on different market participants, such as mutual funds, portfolio management firms, and alternative investment funds, must be noted.

Participants in the market can use a number of strategies to comply with SEBI's rules and maximize their use of the RFQ platform. It is essential to first comprehend the features and functionality of RFQ platforms. Since January, using the services of SEBI-registered brokers has been an option, further facilitating increased participation. The RFQ platform encourages brokers to submit bids in a one-to-many mode as this can help with price discovery and boost overall market efficiency.

Conclusion

The SEBI guidelines for corporate bond transactions on the RFQ platform indicate a significant step in the direction of increasing market liquidity and transparency. Participants in the market can help create a thriving secondary market for corporate bonds by adhering to these rules and making use of the advantages of the RFQ platform. Adopting these new regulations and actively using the RFQ platform will encourage a more robust corporate bond market in India, which will be advantageous to both investors and the economy as a whole.