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The online Bond Platform Providers or OBPPs are the person or companies that provide debt securities to non-institutional investors on an online bond platform. Most of the Online Bond Providers are fintech companies that are supported by Stockbrokers and SEBI registered Intermediaries. Looking at the increase in the number of users in the OBPs and access of non-institutional investors to the bond markets, there is a need to keep check and balance on the operations of the OBPPs by bringing transparency in the disclosure process. Henceforth to regulate the operation of the OBPs, the SEBI has issued a framework for entities desirous of operating OBPPs under Regulation 51A of SEBI (Issue & Listing of Non-convertible Securities) Regulation 2021, which requires:
Therefore, the Online Bond Platform Providers, in addition to complying with the requirements under Regulation 51A, are required to comply with the additional requirements mentioned under “Registration and regulatory framework for Online Bond Platform Providers (OBPPs)” issued on 14th November 2022.
The entity shall have to abide by the rules and obligations enumerated below:
The entity shall undertake and confirm the following in terms of technological requirements:
The requirements for access and participation are:
1. The Online Bond Platform Providers shall have fair & transparent criteria for registering sellers or investors on its online bond platform.
2. The entity shall undertake due diligence while registering any investor, seller, or user on its online bond platform.
3. The entity shall establish the required system & frame written policies in regard to the following:
4. The entity shall ensure data governance by making information available to investors & sellers on a non-discriminatory and fair basis, including:
5. The entity shall ensure data privacy and data integrity at all levels.
The online bond platform providers may allow third-party sellers to use their OBP to sell securities. It is required that before providing any platform to third-party sellers, the entity shall enter into an agreement with such seller that clearly defines the relationship and determines the mutual rights, liabilities & obligations.
The Online Bond platform providers shall take necessary steps in complying with the Know Your Customer or KYC requirements and verify the identity and submitted documents of the investors & sellers.
The online bond platform providers shall ensure that:
The online bond platform provider shall undertake risk profiling by evaluating through a set of questionnaires containing appropriate risk factors & disclaimers. The entity shall also evaluate the level of risk an investor or seller is willing to undertake based on their risk, appetite, age, investment, horizon etc.
1. Receipt of order to investor on placement of order: The Online Bond Platform provider shall issue a receipt of order to an investor without any delay, at the time of placing the order. It shall be issued in the electronic format containing the date & time of the order, details of involved parties, quantity & amount proposed to be transacted etc.
2. Deal Sheet to investor after execution of order: The Online Bond Platform provider shall, after execution, issue a deal sheet to the investor. The deal sheet shall contain all the information regarding the transactions, including the date & time of order, details of involved parties, quantity & amount proposed to be transacted etc.
3. Quote receipt to seller after execution of the order: In a third-party sale of debt securities on the online bond platform, the entity shall issue a quote receipt containing the date & time of order, details of involved parties, quantity & amount proposed to be transacted etc.
The entity shall regularly inform the investors & sellers through SMS, E-mail etc., in regard to the status of transactions.
The online bond platform providers must comply with the following disclosure requirements for every debt security offered for sale on the Online Bond Platform:
The online Bond Platform Providers must ensure that their advertisement shall conform to the following requirements:
The online bond platform provider shall undertake measures or steps to redress the investor’s grievances within 30 days of receiving the complaint. Further, the entity shall also make certain disclosures in the form as specified by the stock exchange, including the number, name & date of the complaint.
The online Bond Platform Providers shall ensure that they have a risk management framework that will cover all the aspects of their operations and ensure that the risk is properly identified and managed prudently. The entity must establish a framework to reduce the probability of any erroneous transactions, such as fat-finger errors and unintended/uncontrolled trading activity by investors & sellers.
Further, the entity shall have a mechanism to:
The online bond platform shall put in place appropriate safeguards to deal with exigencies like:
The online bond platform providers must identify and disclose on its online bond platform all possibilities of conflict of interest that may arise due to any transactions or dealings with any related parties.
The online bond platform providers must ensure that:
In addition to submitting the information required under various SEBI regulations, the online bond platform providers shall submit such information as required by the stock exchanges in relation to their operations. Further, the stock exchange shall require the online bond platform providers to submit information or reports, including:
Moreover, the OBPP shall inform the stock exchange without delay if any event disrupts the activities or abuses the market. The stock exchange is further required to periodically monitor the activities of OBPPs in relation to the compliance requirements under the guidelines and also notify SEBI in case of non-compliance.
The current guidelines are issued to put the online bond platform providers under the regulatory scrutiny of SEBI. Henceforth, to keep the operations under the purview of the SEBI, it is made mandatory by the OBPs to get themselves registered with a stockbroker in the stock exchange. Therefore, in addition to getting registered, the entity must comply with the requirements discussed above. The guidelines not only protect the rights of the investor but also bring the operations of the OBPs under the purview of SEBI.
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