NSE may launch debt segment on Monday

Mulls Market-making to aid liquidity

The National Stock Exchange (NSE) is likely to launch its debt segment on Monday, according to sources familiar with the matter.

The exchange has been actively involved in interacting with various banks such as Axis Bank, YES Bank, State Bank of India, Deutsche Bank, HDFC Bank and Standard Chartered Bank.

It has also had discussions with insurance companies like Life Insurance Corporation of India, HDFC Life and Future Generali and primary dealers such as ICICI Securities to actively participate in the debt segment. Last month, the NSE also conducted mock trading to familiarise members.

N S Venkatesh, chief general manager and head of treasury at IDBI Bank, said the debt trading on exchange platform would be a ‘game changer’ for the country’s corporate bond market.

“Until now, corporate bond market trading was happening bilaterally (over telephone). If trading is available on the exchange platform, it will bring in a lot of transparency and ease of settlement,” he said.

Ashish Ghiya, MD, Derivium Capital & Securities, a debt-segment focused brokerage firm, pegs the current daily turnover in the corporate debt market between Rs 500 crore and Rs 700 crore.

He said if the exchange platform was available for trading in corporate debt, the turnover could grow manifold.

NSE’s rivals — Bombay Stock Exchange and MCX-SX — too have submitted their applications and are waiting for Sebi’s approval.

According to Anil Rego, a certified financial planner, the new window for debt instruments opens up a new window for retail investors to buy debt. Current options, such as listed non-convertible debentures, see limited trading, he said.

Interestingly, the NSE is said to be exploring the possibility of giving incentives to institutional players to act as market-makers providing liquidity to anyone who wants to trade on the bond market.

“But my only concern is that retail investors may not be able to understand the impact of interest fluctuations on debt instruments and how returns will get affected when interest rates go up or down,” Rego says.

Injecting life into debt

How is this debt segment different from how debt securities are currently traded?

Currently the debt market is largely restricted to the institutional segment. The creation of this separate segment looks to give access to the retail investors.

How can you access the market?

You tell your broker that you wish to trade on the debt segment. Sebi has allowed all brokers who are present on the cash market in the equity segment to also trade on the debt segment with minimal paperwork, and given them six months to complete any remaining formalities.

How does it work?

All securities are dematerialised. Buying and selling will take place in pretty much the same way as equities, with securities being transferred from one demat account to another.

How large will the trades be?

The size of the trade will vary from bond to bond, but the securities can come for as low as Rs 5,000-10,000, according to exchange officials.

How long will trading be open?

The trading hours will be longer than in the equity segment, it is open from 9:00 AM to 5:00 PM.