Mutual Funds Must Use RFQ Platform For 10% Of Corporate Bond Trades, Says SEBI
The SEBI seeks to encourage transparency in corporate bond transactions by mutual funds.
The Securities and Exchange Board of India has mandated that at least 10% of mutual funds’ monthly secondary market trade in corporate bonds by value must be done through the one-to-many mode on the request for quote platform of stock exchanges starting Oct. 1.
The platform allows buyers and sellers of debt securities to put in a request—or a quote—on a trading screen to carry out a trade. The party initiating the transaction can choose the number of counter parties it wants to do business with. The seller of a corporate bond, for instance, can choose to invite quotes from all market participants or a select few using the platform.
The platform was introduced six months ago to encourage transparency in price discovery in the secondary market for corporate bonds, according to Ajay Manglunia, managing director of JM Financial.
Transactions in the secondary market for corporate bonds at present takes place over the counter, usually facilitated by brokers or arrangers.
From Oct. 1, mutual funds must carry out a tenth of their average secondary market trades by value made in the preceding three months by seeking quotes through the RFQ platform, the market regulator said in a notification on Wednesday.
The SEBI also said all transactions, which have mutual funds on both sides of the trade, must be executed through the RFQ platform in one-on-one mode. Such transactions will also be counted towards the 10% requirement, it said.
Finally, mutual funds will have to make disclosures of these transactions on a fortnightly basis once the regulations come into force.
“The platform was open and could be used, but there wasn’t too much volume,” Manglunia said. “It’s a positive step by the regulator, and one that will bring in more transparency in price discovery going forward.”