Big boost for corporate bonds as SEBI lets brokers place bids on RFQ platform

Back in February 2020, pursuant to approvals from SEBI, both the National Stock Exchange of India Ltd and BSE Ltd launched RFQ platforms, as an extension of their existing trade execution and settlement platforms, to bring transparency to 'over the counter' deals in corporate bonds, which were negotiated bilaterally.

The platform provides participants a range of options to seek a quote and to respond to a quote, while keeping an audit trail of all interactions i.e. quoted yield, mutually agreed price, deal terms, etc. The quotes are bilaterally negotiated between the counterparties.

Currently, the RFQ platform runs as a participant-based model, wherein all regulated entities, listed corporate bodies, institutional investors and all Indian financial institutions are eligible to register, access, and transact.

To enhance liquidity on the RFQ platforms of the stock exchanges, SEBI has mandated registered mutual funds and portfolio management services to undertake a specified percentage of their total secondary market trades in corporate bonds through the RFQ platform of stock exchanges.

IRDAI has also prescribed similar stipulations for insurers. Since its introduction, the percentage of RFQ trades to total trades in the bond market has been growing and now stands around 30 percent.

The regulator has been receiving representations from market participants to permit stock brokers to place bids on behalf of their clients to facilitate wider market participation in the corporate bond market. Hence, it has been decided to allow stock brokers to place bids on the RFQ platform.