- Sebi proposes to bar platforms from selling privately placed corporate bonds to non-institutional investors within six months of allotment
- The proposal comes after the regulator found that in some cases the entire privately placed issue was sold to more than 200 investors within 15 days of allotment, making it more akin to a public issue
- “The regulator is concerned about private placements becoming shadow public offerings via distribution on online platforms given that the rules, compliance and disclosure requirements for a public offering are much more stringent and detailed,” said Shardul Amarchand’s Ahluwalia
- But Ankit Gupta, who founded BondsIndia.com, said institutions would be required to maintain a huge balance sheet to buy and hold notes for six months
- Because of this, Gupta said there’s a risk of platforms’ ability to participate in primary issuance will be limited, thereby affecting liquidity. He will reach out to the regulator for more clarity.
Trade Settlement
- Sebi has proposed transactions on these platforms be settled either through the debt segments of exchanges or through request for quote platforms
- The regulator found that in some cases these platforms accepted funds directly from the client, bypassing procedural norms
- But market participants argue the two routes suggested by Sebi aren’t regularly used by bigger participants to settle over-the-counter trades
- “In cases where platforms are settling trades through clearing corporation, the party that buys bonds credits money in clearing corporation’s account directly and the seller supplies the debt securities,” said Aditi Mittal, co-founder at IndiaBonds.com and director at one of India’s leading broker A.K. Capital Services Ltd., adding only if the deal matches, respective accounts are debited and credited
- “This system is working beautifully as nothing is paid into the platforms’ account. Hence, the concern regarding tweaking the settlement structure needs to be discussed and deliberated,” she said.
- The authority also proposes to prohibit platforms selling bonds that will not be listed on exchanges
- “This move will reduce the variety of bonds available on bond platforms for investors,” said IndiaBonds’ Mittal, adding there are other ways to educate the investors such as highlighting the difference between listed and unlisted notes.
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