Sebi, RBI working closely on bond derivatives: Tuhin Kanta Pandey

Sebi and RBI are working to introduce bond derivatives to deepen liquidity as the regulator pushes reforms to boost retail participation and strengthen India's bond market

Securities and Exchange Board of India (Sebi) Chairman Tuhin Kanta Pandey on Friday said the regulator is working with the Reserve Bank of India (RBI) to facilitate bond derivatives.

 

“Both Sebi and RBI are working closely on bond derivatives and bringing in an extra opportunity. Secondary trading in bonds is taking place, but it needs to be much, much better… I believe that bond derivatives will be another way of creating further liquidity and depth in this market,” Pandey said while speaking at Samvad, a symposium on the securities market.

 

He added that although the size of the bond market had increased from 40 per cent of total bank credit to industry and services to 60 per cent in the last few years, it was still lower than in countries such as China. 

 

“We have a constraint that we still do not have too many issuers. The number of issuers needs to expand. Similarly, there has to be a number of different rated bonds. A-rated and below bonds must also come in to give a proper yield curve. And those efforts are continuing,” Pandey said, adding that there was a need for education regarding corporate bonds at the retail level.

 

Sebi has recently reduced the threshold for retail investments in bonds from Rs 1 lakh to Rs 10,000 in a bid to boost participation.

 

He also cited differential tax treatment as one of the issues for the segment.

 

“We have to make people educated about what it entails to invest in bonds — because you need not always hold them till maturity. You can also dispose of them. The question is whether the secondary market will offer that purchase and sale. We did get a liquidity window facility saying that you can give put options. But so far not much movement has taken place. Not many issuers have come forward; still, the market is an OTC market,” the chairman said.

 

Pandey also hinted at a circular soon on the close auction session, a move on which a consultation paper was floated last year.

 

Addressing the symposium, Pandey said capital markets are no longer merely supporting economic expansion but are increasingly central to India’s development journey by efficiently channelling household savings into productive investments.