Insurers, pension funds need changes before debt segment debut

National Stock Exchange launched its debt segment on Monday

Insurance companies and pension funds may not immediately be able to participate as trading members on the debt segment of exchanges. Their participation is likely to need a change in regulation, according to a senior official from the Securities and Exchange Board of India (Sebi).

“SCRR (Securities Contracts Regulation Rules) needs to be amended before insurers and pension funds are allowed to become trading members. The amendment has to be done by the government,” said the official, who did not want to be named.

SCRR defines who can become trading members of an exchange, and does not currently provide for insurance companies other than Life Insurance Corporation of India (LIC) and General Insurance Corporation of India as members.

The Insurance Regulatory and Development Authority (Irda) and the Pension Fund Regulatory and Development Authority (PFRDA) have given their concurrence, the Sebi official said. As soon as SCRR is amended, insurers and pension funds could participate as trading members on the debt segment of stock exchanges.

The National Stock Exchange on Monday launched its debt segment. The other two stock exchanges, BSE and MCX Stock Exchange, are also said to be preparing for such a launch. NSE has been in talks with insurance players to participate in the debt segment. It had held discussions with LIC, HDFC Life and Future Generali, according to a source.

It is also said to have been in talks with various banking entities, including Axis Bank, YES Bank, State Bank of India, Deutsche Bank, HDFC Bank and Standard Chartered Bank.

“We have been actively engaging with many key institutions and are confident that they will be able to bring in liquidity to the platform, which will benefit the entire eco system of issuers, institutions and retail investors,” said Chitra Ramkrishna, managing director and chief executive officer, NSE.

IDBI Bank was the first to trade on the debt segment. The financial institution sold 9.15 per cent Tata Power bonds worth ~5 crore.

The exchange was also looking at the possibility of introducing market-making on the debt segment. Market-making is a means of providing liquidity to those who wish to trade certain securities generally by designating a large financial institution to provide both buy and sell quotes.

Sebi is also looking at implementing the so-called delivery versus payment (DVP) 3 settlement type, where trades are settled on a net basis and intra-day trading is allowed, for institutional investors. Currently, institutional investors’ trades are settled on a DVP 1 (gross) basis, which allows only trade for trade.

The market regulator, in consultation with the exchanges, has to decide on the margin requirement for DVP 3 settlement.