SEBI proposes regulatory framework for ‘online’ bond platforms

Capital markets regulator Sebi on Thursday proposed a regulatory framework for an ‘online’ bond platform for selling listed securities.

The proposal, according to the consultation paper, requires the bond forums to register with SEBI as a share broker in the securities segment or operate a business as a SEBI registered broker.

In this agreement, the Securities and Exchange Board of India (SEBI) will provide the platform through customary intermediaries, which will boost investor confidence, particularly among retail investors.

Additionally, these organisations will be subject to share broker regulations. These regulations will control their operations, code of conduct, and other risk management-related matters.

Debt securities offered for purchase or sale on behalf of an online bond platform must only be listed debt securities, according to the SEBI proposal.

It has been suggested that listed debt securities offered for sale on bond platforms that were issued through a private placement should be locked in for a period of six months following the day the issuer allotted the debt securities.

The regulator has asked the parties involved for suggestions by August 12 on this.

According to Sebi, “it was observed that there is an urgent need to regulate the operations of these online bond platforms, keeping in mind the primary purpose of facilitating effective trading and strong investor protection requirements for investors, particularly non-institutional investors.”

The trading platform of the debt section of exchanges or the RFQ (Request for Quote) platform of the stock exchanges should be used to route transactions made on online bond platforms because these platforms will allow for Delivery Versus Payment (DVP-1) clearing and settlement.

Since the settlement is guaranteed on a T+2 (trading plus two) basis, routing their trades through the trading platform of exchanges will aid in reducing the settlement risk connected with these online bond platforms. Additionally, it will give investors a chance to withdraw their money and a clear mechanism for resolving their complaints.

The regulator claims that the market and market participants will benefit from bond platforms being registered as stock brokers under Sebi regulations since regular KYC criteria will be applied when clients register on bond platforms.