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The SEBI, through a circular dated 24th January 2013, allowed a dedicated debt segment in all the stock exchanges. This move comes as a way of providing good trading infrastructure to the debt markets as the debt securities market is settled by the institutional investors on OTC (Over the Counter) basis and hence is unregulated compared to other equity markets. In pursuant to this, the SEBI has permitted stock exchanges to offer electronic requests for quotes, screen-based trading for order matching etc. Henceforth, to regulate the structure of debt instruments through Request for Quote platforms in the stock exchanges, SEBI issued a present circular on 19th October 2022.
The Request for Quote Platforms (RFQ) is an electronic platform wherein multilateral negotiations take place in a centralised online trading platform. It is a sophisticated system which provides a straight-through clearing and settlement process. In response to providing a centralised trading platform for debt securities, the BSE and NSE have launched RFQ platforms in addition to the existing trade execution and settlement process, as it will help bring transparency in the Over Counter deals (OTC).
The essential features of RFQ are:
This circular shall be effective from 1st January 2023.
The securities which are eligible for being traded in the RFQ are:
The Request for a Quote platform is a participant model. It allows listed corporate bodies, regulated entities, institutional investors and all eligible financial institutions to register, access and transact on the platforms. Henceforth, to increase or improve the liquidity on the Request for Quote platforms, SEBI has allowed Mutual Fund and Portfolio Management Services to undertake their secondary market trade in corporate bonds through the Request for Quote trade platform. Keeping in view of this step, the Insurance Regulatory and Development Authority of India has also prescribed a similar option to all its insurers.
Based on the recommendations received from the market participants, SEBI has realised the need to increase the participation of the Stockbroker in the corporate bond market. To facilitate this objective, it is decided by SEBI that stock brokers are allowed to place or seek bids on the Request for Quote platform on behalf of their client.
The other directions issued under the circular are:
The SEBI has introduced the Request for Quote Platforms to provide a better market structure for debt securities. To maintain the debt securities market at par with the equity markets, the regulatory authority has allowed stock brokers, Mutual Funds and Portfolio manager services to deal in corporate bond securities in the Request for Quote platform. Since the dealing in the debt securities market is negotiated bilaterally, the need to bring transparency in the Over the Counter trade is imperative. Therefore, to increase the transactions in the stock exchanges through the RFQ platform, it is made mandatory to modify their bye-laws, rules and regulations.
Read Our Article: SEBI Revision of provisions for Electronic Book Provider Platform
An Advocate by profession, Nikhil Mogha holds experience in the field of Business and Securities law. He has done his Masters of Law in Corporate Law from Guru Gobind Singh Indraprastha University, New Delhi. He is also versed with the drafting and research work in the field of Company Law, Banking Laws and Contract Laws.
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