Abstract: The Securities and Exchange Board of India (SEBI) has issued a circular (SEBI/HO/AFD/AFD-POD-2/P/CIR/2023/138) on August 07, 2023, directing Foreign Portfolio Investors (FPIs) to conduct a minimum of 10% of their total secondary market trades in Corporate Bonds on the Request for Quote (RFQ) platform of stock exchanges on a quarterly basis, starting from October 01, 2023.
Introduction: SEBI, India’s regulatory authority for securities and capital markets, has been actively working to boost liquidity on the RFQ platform of stock exchanges. As part of its efforts to increase transparency and disclosure in the secondary market for corporate bonds, SEBI has laid down specific guidelines for transactions conducted by SEBI-registered intermediaries on the RFQ platform. To further this initiative and encourage increased participation in the RFQ platform, SEBI has mandated Foreign Portfolio Investors (FPIs) to execute at least 10% of their total secondary market trades in Corporate Bonds by value through the RFQ platform on a quarterly basis. This circular, issued under Section 11(1) of the Securities and Exchange Board of India Act, 1992, in conjunction with the provisions of Regulation 20(5) and Regulation 44 of SEBI (Foreign Portfolio Investors) Regulations, 2019, aims to safeguard investor interests and regulate the securities markets.
Analysis: The circular sets a new requirement for FPIs, stipulating that they must undertake a minimum of 10% of their total secondary market trades in Corporate Bonds through the RFQ platform. This move is expected to bolster liquidity on the RFQ platform of stock exchanges, making it more robust for trading corporate bonds. By encouraging FPIs to place or seek quotes on the RFQ platform, SEBI aims to promote increased participation and trading activity, ultimately fostering greater transparency and disclosure in the secondary market for corporate bonds.
The circular’s implementation date is October 01, 2023, which provides FPIs with a reasonable timeline to adapt to the new mandate. This step by SEBI aligns with its overarching goal of enhancing the efficiency and integrity of the securities markets while safeguarding investor interests.
Securities and Exchange Board of India
Circular No. SEBI/HO/AFD/AFD-POD-2/P/CIR/2023/138 Dated: August 07, 2023
To,
All Foreign Portfolio Investors (“FPIs”)
All Designated Depository Participants (“DDPs”)/Custodians
Madam/Sir
Subject: Transactions in Corporate Bonds through Request for Quote (RFQ) platform by FPIs
1. SEBI has been taking steps to increase the liquidity on RFQ platform of stock exchanges and to enhance the transparency and disclosure pertaining to trading in secondary market in corporate bonds. Certain stipulations have been prescribed for transactions by SEBI registered intermediaries on RFQ platform.
2. Considering the above and with a view to increase liquidity on RFQ platform vis-à-vis trading in Corporate Bonds by FPIs., it is decided that FPIs shall undertake at least 10% of their total secondary market trades in Corporate Bonds by value by placing/seeking quotes on the RFQ platform of stock exchanges, on a quarterly basis.
3. The aforesaid requirement shall come into force with effect from October 01, 2023.
4. This circular is issued in exercise of powers conferred under Section 11(1) of the Securities and Exchange Board of India Act, 1992, read with the provisions of Regulation 20(5) and Regulation 44 of SEBI (Foreign Portfolio Investors) Regulations, 2019 to protect the interests of investors in securities and to promote the development of, and to regulate the securities markets.
5. The circular is available on SEBI website at www.sebi.gov.in under the link “LEGAL > Circulars”.
Yours faithfully,
Vikash Narnoli
Deputy General Manager
Tel.No: 022 26449161
vikashn@sebi.gov.in
