Sebi allows FIIs to offer G-secs, corporate bonds as collateral

Says such bonds will have to have minimum rating of AA by recognised credit rating agencies

Following last month’s Budget announcement, market regulator Sebi today allowed foreign institutional investors (FIIs) to offer government securities and corporate bonds as collateral for their transactions in both cash and futures and options (F&O) segments.

Sebi has said such bonds will need a minimum rating of AA by recognised credit rating agencies. Also, these bonds will have to be in dematerialised form. The regulator has directed clearing corporations to have an enabling framework for acceptance of such bonds as collateral.

“The bonds shall be treated as part of the non-cash component of the liquid assets of the clearing member and shall not exceed 10 per cent of the total liquid assets of the clearing member,” Sebi said in a circular.

 “The bonds shall have a fixed percentage based or VaR (value at risk) based haircut.  A higher haircut may be considered to cover the expected time frame for liquidation. To begin with, the haircut shall be a minimum of 10 per cent,” it added.

Earlier, FIIs were allowed to offer cash and foreign sovereign securities with AAA rating as collateral in the F&O segment, while cash, foreign sovereign securities with AAA rating and government securities were allowed in the cash segment.