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The Securities and Exchange Board of India (Sebi) on Wednesday said that from December mutual funds have to undertake a minimum of 25% of their total secondary market trades by value in corporate bonds on the Request for Quote (RFQ) platform of stock exchanges.

The earlier requirement, which came into effect from October 2020, was 10 % of the total secondary market trades by value in corporate bonds.

Moreover, mutual funds have to now undertake a minimum of 10% of their total secondary market trades by value in commercial papers by RFQ platforms.

This has been done to further boost liquidity on the exchange platforms as well as enhance transparency and disclosure pertaining to debt schemes and investments by mutual funds in corporate bonds or commercial papers. This is based on recommendations of the Mutual Fund Advisory Committee (MFAC).

As per the markets regulator, the percentages will be considered on the average of secondary trades by value in the immediate preceding three months on a rolling basis.

For example, for December 2021, mutual funds have to undertake 25% (by value) of their average secondary market trades (excluding inter scheme transfer trades) done in the immediate preceding three months, i.e. July, August and September, for corporate bonds by placing or seeking quotes through RFQ platform of stock exchanges.

Meanwhile, mutual funds have been permitted to accept the Contract Note from the brokers for transactions carried out in One to One (OTO) and One to Many (OTM) modes of the RFQ platform.

Ajay Tyagi, chairman, Sebi had last year said that mutual funds were the worst hit in the liquidity issues brought about by the covid-19 pandemic.

He had further added that the use of this RFQ platform by mutual funds as well as institutional investors as well will result in better transparency and price discovery in the bond market. 

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