Mumbai: Continuing with its efforts to develop the country's corporate debt market, Sebi today issued elaborate guidelines for setting up a separate debt segment on stock exchanges where entities like banks and pension funds can execute trades.
The decision to have separate debt segment on the bourses was taken at market regulator Sebi's board meeting last week.
Securities and Exchange Board of India said the debt segment would provide separate trading, reporting, membership, clearing and settlement rules.
Debt securities may be called debentures, bonds, deposits, notes or commercial paper depending on various factors including maturity periods.
In the proposed debt segment, trading would be from 0900 hours to 1700 hours.
"Institutions such as scheduled commercial banks, primary dealers, pension funds, provident funds, insurance companies, mutual funds... Can trade on the debt segment either as clients of registered trading members or directly as trading member on proprietary basis only.
"Such institutions desirous of trading on own account only shall be given trading membership under SEBI (Stock Broker and Sub-Broker) Regulations, 1992 as proprietary trading member," Sebi said in a circular.
According to the regulator, the market for debt securities differs from equity markets in several ways such as risk, returns, liquidity, type of participants and method of trading.
"While publicly issued debt securities are listed, traded and settled in a manner similar to equity, privately placed debt is usually traded between institutional investors on 'Over the Counter' (OTC) basis. Such OTC transactions are mandatorily reported on reporting platforms at FIMMDA, BSE and NSE," Sebi said.
The regulator said an existing stock exchange or new bourse willing to set up debt segment is required to make an application with Sebi providing operational, regulatory and any other necessary details.
Sebi said minimum capital deposit required to be maintained by a stock broker for trading in the debt segment would up to Rs 50 lakh.
"With the view to infuse liquidity in the market, market makers shall be permitted in the debt segment. Market making may be provided by merchant bankers, issuers through brokers or any other entity as may be specified," it said.
The debt segment has to list all the securities and debt instruments and has offer electronic, screen-based trading system.
As per Sebi, the trading facility for the bond market can make use of access methods such as internet and mobile trading. Further, the segment should have separate trading platforms for retail as well as institutional players.