Sebi seeks RBI support to boost participation in corporate bond repo market

Market players said that ARCL is not classified as a Qualified Central Counterparty (QCCP), which restricts participation from banks and PDs

The Securities and Exchange Board of India (Sebi) has requested the Reserve Bank of India (RBI) to provide certain approvals to AMC Repo Clearing (ARCL) to facilitate the participation from banks and primary dealers (PDs), Sebi’s executive director Pramod Rao said.

ARCL was launched in July last year by Finance Minister Nirmala Sitharaman to boost liquidity in the corporate bond repo market.

The Sebi official said that the volume in the corporate bond repo market has surpassed Rs 1 trillion in a year’s time. The monthly transactions on the platform are now in the range between Rs 10,000 crore and Rs 15,000 crore, he added.

Market players said that ARCL is not classified as a Qualified Central Counterparty (QCCP), which restricts the participation from banks and PDs.

“We are in dialogue with RBI to allow primary dealers and banks to participate in this (ARCL) as well as it will deepen the market. The current trade volume on ARCL has reached such levels without bank or PD participation, should only tell you there is depth even without them,” said Rao, speaking at the Global Fintech Fest.

Rao further asserted on the steps taken by the market regulator to deepen the corporate bond and debt market, including its focus on online bond platforms, easier offer documents, backstop facility for debt market, municipal bonds, and real estate investment trusts (REITs).

He also disclosed that three fractional ownership platforms are in process of registering under the newly formulated framework of Small & Medium REITs (SM REITs). More are expected to apply before the deadline of September 8.

“Because ARCL is not QCCP, banks need to allocate higher capital against their outstanding positions on ARCL under Basel norms. While banks and PDs are there in the segment, given the constraints, they cannot participate,” said a market participant.

Another participant said that for enabling their participation, funds borrowed in tri-party in corporate bonds would need to be exempt from Cash Reserve Ratio (CRR) calculations, similar to the exemptions available for funds borrowed in the tri-party repo in government securities for banks and PDs.

ARCL offers clearing and settlement services to all trades executed on NSE and BSE under tri-party repo in corporate debt securities.

The capital for ARCL has been contributed by asset management companies (AMCs) based on their assets under management (AUM) of open-ended debt-oriented schemes.

The platform’s services extend beyond AMCs like for insurance companies, market makers and short-term traders to take position and manage their risks in listed corporate bonds and debentures (Non-Convertible Debt securities), commercial papers (CPs) and certificate of deposits (CDs).