NSE launches debt trading platform

Awaits guidelines for allowing participation of mutual funds, insurance companies and pension funds

Leading bourse National Stock Exchange today launched the country's first dedicated debt trading platform here and said it is waiting for guidelines from market regulator Sebi for allowing participation of mutual funds, insurance companies and pension funds.

The debt trading platform is expected to provide an opportunity to retail investors to invest in corporate bonds on a liquid and transparent exchange platform.

Banks and primary dealers are first to enter and they will provide enough liquidity in the debt segment, Sebi Whole Time Member Rajeev Kumar Agarwal said after inaugurating the debt platform here.

The mutual funds, insurance companies and pension funds are also expected to participate after guidelines for the same are issued.

"We are awaiting the guidelines from the market regulators for allowing mutual funds, insurance companies and pension funds to participate in the debt segment. Once the relevant guidelines are issued, all these categories will be able to trade directly as members," NSE Chief (Business Development) Ravi Varanasi told reporters.

NSE had recently received approval from Sebi to launch the debt segment.

"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," NSE MD and CEO Chitra Ramkrishna said.

"The institutional platform on the exchanges is an innovation, which has been launched after intensive feedback from market participants. It is very similar to RBI's NDS-OM, where government securities are traded on a transparent platform," Ramkrishna added.

NSE launched retail and institutional platforms in the debt segment, where the lot sizes will be low as one bond for retail investors (up to a ceiling of 1 crore value), while institutions can trade in lot sizes of 1 crore (institutional odd lot) and its multiples and 5 crore (institutional normal lot) and its multiples, Varanasi said.

While publicly placed corporate bonds will be listed for trading in the retail platform, the privately placed corporate bonds will be listed on the institutional platform.

Institutions can also buy and sell publicly placed corporate bonds, Varanasi said.

"Sebi is optimistic and we see huge scope for development of the bond market in the country. Debt platform is different in terms of risk, liquidity and nature of participants," Agarwal said.

Corporate bonds provide stable returns, making it an attractive product for retail investors, who are unable to trade in the OTC or over the counter market.

Now, retail investors can trade on the debt segment, where prices will be determined through market dynamics by anonymous order matching, just like they are determined for shares.

All existing members of NSE can take membership of the segment, without any fresh deposits. They will only have to pay Rs 1 lakh, as a contribution to the settlement guarantee fund.

For the retail platform, a uniform margin rate of 10% will be applicable on debt instruments with a rating of AA or above (or with similar rating nomenclature) by recognised credit rating agencies and 25% for all other debt instruments.

While the order books for the retail platform and institutional platform will be different, the settlement for the two platforms will also be different.

For the retail platform, settlement will be on T + 2, netting between securities will be allowed and there will be a settlement guarantee, while for the institutional platform, settlement will be on T + 1, on a trade for trade basis.