Sebi clarifies on transaction in corp bonds via request for quote platform

Capital markets regulator Sebi on Thursday provided clarity on transaction made by Alternative Investment Funds (AIFs) in corporate bonds through Request For Quote (RFQ) platform.

In its circular, the Securities and Exchange Board of India (Sebi) clarified that all transactions in corporate bonds, wherein AIF is on both sides of the trade would be executed through RFQ platform in 'one-to-one' mode.

However, any transaction entered by an AIF in corporate bonds in 'one-to-many' mode which gets executed with another AIF, would be counted in 'one-to-many' mode and not in 'one-to-one' mode.

This would come into force from April 1, 2023.

Quotes or bids on RFQ platform can be placed to an identified counterparty in one-to-one mode or to all the participants in one-to-many mode.

Under the norms, AIFs will have to undertake at least 10 per cent of their total secondary market trades in corporate bonds by value in a month by placing quotes on the RFQ platform.

RFQ is an electronic platform that enables multilateral negotiations to take place on a centralized online trading platform with straight through processing of clearing and settlement to complete trades.

In February 2020, pursuant to approvals from Sebi, both National Stock Exchange of India (NSE) and BSE launched RFQ platforms, as an extension of their existing trade execution and settlement platforms, in order to bring in transparency in "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 -- quoted yield, mutually agreed price and deal term.