Informist, Monday, Jul 24, 2023
--SEBI: Sitharaman to launch corporate bond backstop fund Friday
--SEBI: Limited purpose clearing co for corp bonds repo launch Fri
MUMBAI – Finance Minister Nirmala Sitharaman will launch the backstop fund for corporate bond market and Limited Purpose Clearing Corp for repo transactions in corporate bonds in Mumbai on Friday, Securities Exchange Board of India Chairperson Madhabi Puri Buch said at a press meet today.
In late March, the regulator's board had approved setting up of the Corporate Debt Market Development Fund in the form of an alternative investment fund, which would act as a backstop facility to buy illiquid investment grade corporate debt during times of stress.
SEBI had proposed that the corpus be built by taking 2 basis points of the assets under management of the participating debt funds, amounting to 30 bln rupees. The government will provide an additional guarantee of 300 bln rupees. The fund will be managed by SBI Asset Management Co Ltd.
"That's an important initiative. Large part of that whole process is in a stage where a significant milestone can be achieved and this is going to be done by the Honourable finance minister on Friday in Mumbai," Buch said.
Separately, SEBI last month had allowed direct participation by entities in corporate bond repos of Limited Purpose Clearing Corp. Market participants may not need to go through a clearing member in order to take part in repos of corporate bonds.
The launch of Limited Purpose Clearing Corp will facilitate active trading by market participants in the corporate bond market. It has been created to manage the process of clearing and settling repo transactions, which will help improve liquidity in the corporate bond market.
The repo market of corporate bonds has not seen much traction since its introduction in 2018. In 2017, the Reserve Bank of India had issued directions on tri-party repo, allowing recognised stock exchanges and clearing corporations to act as tri-party agents.
While the move by SEBI builds on the earlier work and is aimed at increasing liquidity in the domestic corporate bond market, industry players say lack of borrowers is a major challenge in building a robust corporate bond repo market. Currently, this space is dominated by mutual funds, which are mainly lenders.
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Reported by Subhana Shaikh
Edited by Maheswaran Parameswaran
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