Effective today, corporate bonds can be used as collateral on exchanges

To be considered part of non-cash component of liquid assets

Entities trading on the stock market can now use corporate bonds as collateral, expanding the pool of securities which included government securities and open-ended mutual funds 

The National Stock Exchange implemented the move effective from Monday, according to an exchange circular. 

“Corporate bonds shall be treated as part of the non-cash component of the liquid assets of the clearing member and shall not exceed 10% of the total liquid assets of the clearing member,” said the note dated September 20. 

"BSE is...starting to allow the use of eligible corporate bonds as collateral effective from October 1, 2013," said a BSE spokesperson.

The collateral will be to the tune of up to 90% of the value of the bond or with the application of a 10% haircut to its value. The bonds are to be valued everyday on the basis of its closing price of in the cash or debt segment of the exchange, added the note. 

The Securities and Exchange Board of India(Sebi) had come out with a circular in March expanding the pool of securities which can be used by foreign institutional investors(FIIs) to meet collateral requirements. 

“FIIs are permitted to offer the following collaterals - government securities, corporate bonds, cash and foreign sovereign securities with AAA ratings, for their transactions in both cash and F&O(Futures and Options) segments. In this regard, the stipulations specified by Sebi and RBI(Reserve Bank of India) with regard to the acceptance of various collaterals shall be adhered to,” said the Sebi circular.