Sebi notifies rules for direct trade by FPIs in corporate bonds

With an aim to deepen the capital market, regulator Sebi has notified guidelines permitting well-regulated foreign portfolio investors (FPIs) to trade directly in corporate bonds without any broker.

Currently, FPIs can trade in Indian markets only through brokers who are registered with stock exchanges as their members.

Sebi has amended FPI regulations to allow category I and category II FPIs to have an option to directly access the corporate bond market without brokers, as has been allowed to domestic institutions such as banks, insurance companies and pension funds.

The revised norms will be applicable to category-I FPIs that include sovereign wealth funds and central banks as well as category-II ones that include mutual funds and banks, the Securities and Exchange Board of India (Sebi) said in a notification dated January 12.

However, hedge funds, individuals and other high-risk foreign investors will not get this facility.

The move is aimed at boosting foreign inflows in Indian capital market. However, there has been concern from some quarters that it will have negative impact on domestic brokerage houses as they will lose out on revenue.

The notification comes after Sebi's board in September approved a proposal allowing well-regulated FPIs to trade directly in these securities without any broker.

Consequently, the board in November permitted FPIs to invest in unlisted corporate debt securities and securitised debt instruments with a ceiling of Rs 35,000 crore.

Currently, investment made by Sebi-registered FPIs in domestic capital market stands at around Rs 11 lakh crore. This includes Rs 8.2 lakh crore in equities and Rs 2.66 lakh crore in debt.