INDIA: SEBI Receives Consultation Paper on Online Bond Trading Platforms

Thursday July 28 2022

On 21^st July 2022, the Securities and Exchange Board of India (SEBI) has proposed that bond platforms should register as stockbrokers (debt segment) with SEBI or be run by SEBI registered brokers.This will also enhance the confidence among  investors, particularly non-institutional investors, as the platforms would be provided by SEBI regulated intermediaries. Additionally, the stock-broker regulations will be applicable to these entities, which would govern their code of conduct and other aspects related to their operations and risk management.

The transactions executed on the online bond platforms are to be routed through the trading platform of the debt segment of Exchanges. Routing their trades through the trading platform of Exchanges, will help in mitigating settlement risk associated with these online bond platforms as the settlement is guaranteed on T+2 basis.

Registration of the bond platforms as stockbrokers under SEBI Regulations, will be beneficial to the market and market participants as:

• The standard KYC requirements will be applicable while registering clients on bond platforms.
• The Net worth and deposit requirements prescribed for stockbrokers will ensure that the bond platform has a sound and stable financial health.
• The applicability of code of conduct mandated for stockbrokers will ensure fairness in their dealings with clients.
• They will be subjected to regulatory inspection and oversight, providing more confidence to investors and hence, will have the potential to attract more investors.

Routing of transactions through trading platform of Exchanges will provide the following benefits:

• Robust Risk Management framework and Surveillance mechanism;
• Fair and transparent pricing;
• Guaranteed settlement;
• Exit opportunity to the investors;
• Augment market making; and
• Well defined framework for redress of Investor grievances

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