Sebi likely to roll out framework for market making to strengthen bond markets
- The development will take place in view of over 98% of corporate bonds being private placements, while public issuance of debentures only holds about 2% currently -- which leads to a shallow secondary market.
Market regulator Sebi is planning to roll out a framework for market-making to support markets in becoming more vibrant and funds cheaper. The development will take place in view of over 98% of corporate bonds being private placements, while public issuance of debentures only holds about 2% currently -- which leads to a shallow secondary market. Notably, over the years, there has been a rapid increase in mobilisation of resources via the corporate bond route.
Ashwani Bhatia, a whole-time member of Securities and Exchange Board (Sebi) on Tuesday said that "we should be coming out with the framework very soon," as reported by PTI. Sebi's framework is likely to be applicable to every listed issuer who has issued non-convertible debt and has outstanding privately issued NCDs of ₹500 crore or more.
Bhatia was speaking at the annual capital markets summit organized by the industry lobby Ficci. However, he did not offer more details.
Last month, T. Rabi Sankar, Deputy Governor at RBI raised concerns about the mode of issuance of corporate bonds. He said, "the large bulk of corporate bond issuances every year is through the private placement route rather than through public issuances."
According to the RBI's data, in FY22, the amount of money raised through public issuances of corporate bonds stood at merely ₹11,589 crore -- just about 2% of the amount of money raised through a private placement at ₹5.88 lakh crore.
"The advantages of a public issuance in terms of transparency and efficiency of price discovery are well understood. SEBI has been making efforts to make the private placement process more transparent and efficient, for example, through the introduction of the Electronic Bidding Process on stock exchanges," RBI's deputy governor had said.
Nevertheless, Sankar added, "there is an overwhelming preference for private placement. A hard look at the underlying issues including the reasons for issuers preferring to eschew the public issuance process is perhaps called for."
RBI's data further revealed that the outstanding stock of corporate bonds has increased four-fold from ₹10.51 lakh crore by FY12 end to ₹40.20 lakh core by the end of FY22. Annual issuances during this period have increased from ₹3.80 lakh crore to ₹6 lakh crore.
Further, the total settled value of secondary market trades during FY11 was ₹4.50 lakh crore which rose to ₹14.37 lakh crore for FY22. Sankar said, "Clearly, secondary trading has not risen in consonance with the size of the market."
" Efforts need to focus on improving complementary– repo and derivative – markets, diversify the investor base, both domestic and global, and improve access of borrowers at the lower end of the credit spectrum. Beyond this, market development and improvements will remain a continuous exercise. As much as we need to take these steps, it will serve us well to temper our expectations on the degree of liquidity in secondary corporate bond markets. If international experience is anything to go by, the best we can achieve may be well short of the liquidity we are used to in Government bond markets or equity markets," Sankar had concluded.
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