MFs to channel 25% secondary corp bond deals per month via bourses

Informist, Wednesday, Oct 6, 2021


MUMBAI – The Securities and Exchange Board of India today asked mutual funds to undertake at least 25% of their monthly secondary corporate bond trades and 10% of commercial paper deals, by value, via the one-to-many mode on the request-for-quote platform of stock exchanges.


Currently, fund houses were only required to undertake a minimum of 10% of their monthly secondary corporate bonds deals by seeking quotes through the one-to-many mode on the request-for-quote platform of the exchanges, as mandated by SEBI in its July 2020 circular.


The new norms will come into effect from Dec 1, the regulator said in a circular today, adding that this will exclude inter-scheme transfer trades.


The percentages shall be calculated on the average of secondary trades by value in immediate preceding three months on rolling basis, the circular said. Request for quote system allows market participants to interact and negotiate transactions related to debt securities.


SEBI also allowed mutual funds to accept contract notes from brokers for transactions carried out in 'one-to-one' and 'one-to-many' modes of the platform, to aid them in meeting these norms.


Earlier, fund houses could only accept contract notes from brokers for trades undertaken by the one-to-one mode, according to market participants.


They also said that the norms will facilitate and enhance transparency and disclosures relating to corporate debt transactions, and eventually help improve the liquidity on the exchange platforms. However, other industry players said major changes to trade practices are unlikely as transactions through the request-for-quote platform also require the participation and help of brokers.


SEBI's July 2020 circular had been issued following Franklin Templeton Asset Management Ltd's unexpected decision to close six debt-oriented schemes in April 2020, citing illiquidity and redemption pressure due to the COVID-19 pandemic.


The regulator had then also mandated that all transactions in corporate bonds and CPs wherein mutual funds are on both sides of the trade, will need to be executed through the request-for-quote platform of stock exchanges in one-to-one mode.  End


Reported by Ajay Ramanathan

Edited by Shirsha Thakur


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