BSE to begin corp, govt bonds trading on clean price mechanism

BSE, Asia's oldest bourse, today said it plans to move trading of some of the corporate and government bonds on clean price and yield (YTM) mechanism from August 8.
In this mechanism, the trader has an option of entering order using clean price or yield.
Currently, trading of all the bonds which are part of 'F' or 'G' group is done on Dirty Price, which is represented in terms of the face value of the bond and has the accrued interest component added to it.
"In order to align with the debt OTC (Over-The-Counter) market, the exchange proposes to move trading of some of the corporate and government bonds on clean price and yield mechanism," BSE said in a circular.

The changes will be made live with effect from Monday, August 8, 2016, it added.
In debt OTC market, bonds are traded on clean price and yield mechanism. In the clean price, the price of a bond is expressed in 100 basis points and excludes accrued interest, while yield of a bond is that rate which equates the discounted value of the future cash flows to the present price of the bond.

In clean price mechanism, bonds will become part of 'FC' group for corporate bonds and 'GC' group - for government bonds.
Tick Size of all the FC group bonds on which clean price trading is to be allowed will be 0.0001, while the same for GC group bonds will be 0.0025.

"The close price of all the bonds forming part of FC and GC group which were till date traded on dirty price shall be converted to clean price on EOD of August 5, 2016. This shall be done by excluding accrued interest as on August 5, 2016 and converting the price in 100 basis points,
"Thus the Previous Close Price that shall be provided by the exchange on August 8, 2016 in its market picture shall be clean price of the bond," BSE said.
The close price of the bond will be based on volume weighted average of trade prices of the trades executed during the last 30 minutes of continuous trading for that bond.

In case no trade occurs during the last 30 minutes of the continuous trading session, the close price will be the last trade price for that bond. In case no trades occur in continuous trading session during the entire day, the close price will be the previous close Price.