Sebi looking to mandate FPIs to use RFQ platform for 10% of secondary transactions

Sebi on Thursday proposed mandating Foreign Portfolio Investors (FPIs) to undertake at least 10 per cent of their total secondary market trades in corporate bonds by value on the RFQ (Request For Quote) platform of the stock exchanges.

A wide variety of debt securities are available for trading on the RFQ platform. Image Courtesy: Reuetrs.

Sebi on Thursday proposed mandating Foreign Portfolio Investors (FPIs) to undertake at least 10 per cent of their total secondary market trades in corporate bonds by value on the RFQ (Request For Quote) platform of the stock exchanges.

The proposal is aimed at increasing the liquidity on the RFQ platform and enhancing the transparency and disclosures pertaining to investments in corporate bonds, which in turn will encourage investment by FPIs in the corporate bond segment, Sebi said.

RFQ, which was launched on BSE and NSE in February 2020, is an electronic platform that enables multi-lateral negotiations to take place on a centralised online trading platform with straight-through processing of clearing and settlement to complete the trade. A wide variety of debt securities are available for trading on the RFQ platform.

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In its consultation paper, Sebi has proposed that FPIs may be mandated to undertake at least 10 per cent of their total secondary market trades in corporate bonds by value by placing quotes on the RFQ platform of stock exchanges, on a quarterly basis, to start with.

The regulator has provided a similar mandate for other intermediaries such as alternative investment funds (AIFs), portfolio management services (PMS) and stock brokers. The Securities and Exchange Board of India (Sebi) has sought comments on the proposals till July 26.

RFQ platform reduces information asymmetry and enhances transparency in the corporate debt segment by providing disclosures such as term sheets, price information and market quotes. This is expected to result in better price discovery, lower costs and ease of doing business.

"The various advantages brought in by the RFQ platform are expected to propel Indian bond markets into a higher growth phase, thereby promoting investments in the segment by all participants, including FPIs," Sebi said.

However, the same can be achieved if the participation on the platform is deepened and widened due to adoption by a maximum number of participants resulting in a greater volume of trades, it added.

While the overall corporate bond investment by FPIs is low, the percentage of such trades carried out on the RFQ platform is even lower.

During FY2022-23, FPIs have carried out merely 4.5 per cent of their total trades in corporate bonds through the RFQ platform. Further, during the year, FPIs accounted for only 0.78 per cent of total trades in corporate bonds on the RFQ platform executed by various entities.

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Sebi Foreign Portfolio Investors (FPIs)