The Securities Exchange Board of India (Sebi) on Friday allowed foreign portfolio investors (FPI) to trade directly in corporate bonds without needing any broker.
This move was first recommended in August by the H R Khan committee on development of corporate bond. The Reserve Bank of India (RBI) acted on most of the recommendations and allowed FPIs direct access to government bond trading platform, the guidelines on which is getting prepared. The central bank had also said that time that Sebi would allow FPIs direct access to FPIs to trade in corporate bonds, without needing any broker.
Since these bonds are issued by companies, the subject fell in the purview of Sebi to take a final call.
In a statement on its website, Sebi said FPIs will have an option to “directly access corporate bond market without brokers as has been allowed to domestic institutions such as Banks, Insurance Companies, Pension Funds etc”.
The FPIs can only do the trading for their own need and not on behalf of some others.
"Access to Over-the -Counter (OTC), Request for Quote (RFQ) and Electronic Book Provider (EBP) platforms of recognised stock exchanges will be provided to FPIs only for proprietary trading and participation of FPIs will help in deepening the Corporate Bond market,” the Sebi statement read.
Sebi said it would amend necessary acts to accommodate the change.
As the regulators expect, allowing FPIs direct access in the corporate bond market would indeed deepen the corporate bond market by improving the trading in the secondary market. Even as the secondary market in government bonds have multiple investors, the corporate bond market remain lifeless as 95% of the issuances are privately placed.
Still, investment in corporate bonds have increased in the recent past. As on September 22, FPIs have exhausted 84.78% of their limits in government bonds, whereas in corporate bond, the FPIs have used up 66.40% of their limit of $51 billion equivalent in Indian rupees.