Sebi focuses on market makers to intensify corporate bond section

With an intension to develop and fortify the corporate bond segment, regulator Securities and Exchange Board of India (Sebi) is contemplating creation of a set of "market makers". These are entities that quote both a buy and a sell price of corporate bonds in order to generate liquidity in the secondary market for such bonds.

Additionally, the regulator is in the process of finalising the modalities for setting up of a backstop facility for procuring corporate bonds.

Furthermore, Sebi is mulling to refurbish the corporate bond database that is accessible to all investors, Sebi states in its annual report for 2020-21.This database would make available more granular level information about debt covenants to investors in the debt market, it added.

Being acutely conscious of the need for diversification of sources for financing the infrastructure needs of the country, Sebi has been focusing its attention on creating a vibrant secondary market for investment grade corporate bonds.

The regulator has rolled out several measures in the recent past to facilitate liquidity in the secondary market. The regulator states, "One additional proposed step is aimed at creating a set of market makers who will be present in the market most of the time both on the buy side as well as the sell side of investment grade corporate bonds."

Sebi said it is working out appropriate eligibility criteria for such market makers so as to ensure that financially sound entities with the requisite expertise are encouraged to participate. Simultaneously, the issues of funding the cost of inventory holding of these entities through various mechanisms -- by putting in place a back-to-back arrangement with the issuers, by creating a repo market for corporate bonds which can fund the inventory holding of the market makers, among others are also being examined.

With regard to backstop facility, Sebi along with other stakeholders including the Ministry of Finance and the mutual fund industry is in the process of finalising the modalities to set up the facility. Based on a proposal from Sebi, an announcement in the Union Budget for 2021-22 was made with regard to creation of a backstop facility that would purchase investment grade debt securities both in stressed and normal times and help development of the bond market. The proposed backstop facility will function as an entity on standby and is envisaged to facilitate liquidity in the corporate bond market and to respond quickly to stress situations, similar to the mechanisms available in developed markets globally, Sebi noted.

With a view to further develop and deepen the corporate bond market, Sebi plans to revamp the existing rules relating to issue and listing of debt securities by removing redundant provisions, easing the process of issue of debt securities and adding provisions on investor protection and transparency. The regulator is also eyes to enhance the continuous listing requirements for debt listed entities so as to improve the granularity of disclosures relating to financials, material events that include credit events, corporate governance related disclosures including related party transactions.

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