‘Online bond platforms should be registered as stock brokers with SEBI’

‘Online bond platforms should be registered as stock brokers with SEBI’

Market


A consultation paper has been released on the SEBI’s website to regulate the online bond platforms, which are selling debt securities to investors, particularly to retail/non-institutional investors. This is to bring about regulatory oversight, common standard practices, investor redressal mechanism, etc. to many online bond platforms that have mushroomed over the past two to three years. Some of the online bond platforms that are in existence are GoldenPi, BondsKart, Wint Wealth and Indiabonds.

The consultation paper proposed that these bond platforms should be registered as stock brokers (debt segment) with SEBI or be run by SEBI registered brokers.

“This proposal will 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,” as per the paper.

If this is implemented, standard KYC (Know Your Customer) requirements will be applicable when users register on bond platforms. It also ensures the stable financial health of these platforms as the net worth and deposit requirements will be as prescribed for stock brokers. The applicability of the code of conduct mandated for stock brokers will further ensure fairness in their dealings with clients. The platforms will be subjected to regulatory inspection and oversight periodically.

Secondly, the paper also recommended that the debt securities offered for buy/ sale should only be listed debt securities on these platforms. Presently, both listed and unlisted debt securities are being offered.

Further, the paper also suggests that the transactions executed on these online bond platforms are routed through either the debt segment of the stock exchange or through the Request for Quote (RFQ) platform of the exchange. This is to ensure guaranteed settlement of transactions to the users.

“Routing the trades through the trading platform of exchanges will help in mitigating settlement risk associated with these online bond platforms as the settlement on exchange is guaranteed on a T+2 basis. And in case of the the transactions through the RFQ platform of the stock exchanges, the transactions will be cleared and settled on a Delivery Versus Payment basis, which implies transfer of securities only after the payment has been made,” according to the paper.

It was also proposed that the listed debt securities issued on a private placement basis are locked in for a period of six months from the date of allotment of such securities by the issuer, so that the debt is not immediately off-loaded to investors.

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