SEBI allows stock brokers registered under debt segment to place/seek bids on RFQ platform

The Securities and Exchange Board of India(SEBI) has allowed stock brokers registered under debt segment to place/seek bids on RFQ platform via issuing Circular.

The framework for a dedicated debt segment was introduced by SEBI vide circular no. CIR/MRD/DP/03/2013 dated January 2013, permitting the stock exchanges to offer electronic, screen based trading providing for order matching, request for quote, negotiated trades, etc.

In February 2020, pursuant to approvals from SEBI, both National Stock Exchange of India Limited and BSE Limited launched RFQ platforms, as an extension of their existing trade execution and settlement platforms, to bring in transparency in “Over the Counter” deals which were negotiated bilaterally. RFQ is an electronic platform to enable sophisticated, multi-lateral negotiations to take place on a centralized online trading platform with straight-through-processing of clearing and settlement to complete a trade.

Basic features of the RFQ platform:

1. The RFQ platform is a system or interface for inviting and/ or giving quotes on an electronic platform.

2. A participant who seeks quote(s) is termed as an Initiator and a participant who acts/ responds to the quote requests of the Initiator is termed as a Responder.

3. A participant may request other participants for a quote for eligible securities.

4. The Initiator has the option to place quote(s) by disclosing its name or anonymously.

5. The quote can be placed to an identified counterparty (i.e. ‘One to One’ (OTO) mode) or to all the participants (i.e. ‘One to Many’ (OTM) mode).

6. The platform provides the participants a range of options to seek a quote and to respond to a quote, while keeping an audit trail of all interactions i.e. quoted yield, mutually agreed price, deal terms etc.

7. The quotes will be bilaterally negotiated between the counterparties, based on specified parameters. The acceptance of a quote by a participant will be considered as mutual agreement between the parties for the given deal.

The following securities are eligible for being traded on the RFQ platform:

1. Non-convertible securities;

2. Securitised Debt Instruments;

3. Municipal Debt Securities;

4. Commercial Paper;

5. Certificate of Deposit;

6. Government Securities;

7. State development Loans;

8. Treasury Bills; and

9. Any other instrument, as may be specified by Stock Exchanges in consultation with SEBI.

In February 2020, the RFQ platform was introduced as a ‘participant-based’ model wherein all regulated entities, listed bodies corporate, institutional investors and all India financial institutions were eligible to register, access and transact. To enhance liquidity on the RFQ platforms of the stock exchanges, SEBI has, inter alia, mandated1 registered Mutual Funds and Portfolio Management Services, to undertake a specified percentage of their total secondary market trades in Corporate Bonds through RFQ platform of stock exchanges. IRDAI has also prescribed similar stipulations for Insurers.

SEBI has been receiving representations from market participants to permit stock brokers to place bids on behalf of their clients to facilitate wider market participation in the corporate bond market. After consideration and deliberations, it has been decided to allow stock brokers registered under the debt segment of the Stock Exchange(s) to place/ seek bids on the RFQ platform on behalf of client(s), in addition to the existing option of placing bids in a proprietary capacity.

To Read Full Circular Download PDF Given Below: