Panel sees BSE as corporate bond platform

The Securities and Exchange Board of India's (Sebi) committee on unified exchange traded corporate bond market has suggested that the Bombay Stock Exchange (BSE) be given the mandate to implement the setting up of a unified exchange traded corporate debt market.

The committee has also recommended making it mandatory to undertake trades in corporate bonds only through the assigned trading platform, once it is commissioned.

This would effectively put an end to the telephone trade system, currently in practice. Sebi's action plans also include issuing a circular making it mandatory for all entities to report trades undertaken in the corporate debt market.

Simultaneously, other regulatory agencies would be requested to issue guidelines to all entities regulated by them on the need for reporting all trades in corporate bonds in the specified manner.

On choosing only BSE as a platform for this, the committee says that since the market will take time to deepen, there will be little merit in allowing more than one exchange to set up an order matching system, as the order book will be fragmented.

"It would also eliminate conflict of interests in a sense, as the shareholders of NSE are banks and financial institutions which by the very nature of their operations are the entities mainly interested in wholesale debt market dealings," the report says.

It may be recalled that earlier RBI and the initial high level committee headed by R H Patil were in favour of a bank-promoted unified exchange.

Since the F&O market has already created imbalances in risk bearing capabilities of the NSE from the regulatory angle, the committee observed that it would bring balance the two major exchanges.

The committee also felt that once trading on the BSE platform stabilised, attempts could be made to de-link this activity to a subsidiary jointly set up by the two exchanges.

They could have their separate clearing and settlement facilities. This could be done in about two years. The new arrangement will result in creating an independent exchange exclusively for trading, clearing and settlement of debt market instruments, the report said.