Sebi puts in place regulatory framework for online bond platform providers

Securities and Exchange Board of India (Sebi) on Monday came out with regulatory framework for online bond platform providers in a bid to streamline their operations.

Online Bond Platform Providers (OBPPs) are companies incorporated in India and they should register themselves as stock brokers in the debt segment of the stock exchange, as per the framework that would be effective immediately.

"With the bond market offering tremendous scope for development, particularly in the non-institutional space, there is a need to place checks and balances in the form of transparency in operations and disclosures to the investors dealing with such Online Bond Platforms (OBPs), measures for mitigation of payment," Sebi said.

Last week, Sebi notified a framework for entities operating as OBPPs.

During the past few years, there has been an increase in the number of OBPPs offering debt securities to non-institutional investors. Most of them are fintech companies or are backed by stock brokers.

There has been a significant increase in the number of registered users who have transacted through them.

While OBPs provide an avenue for investors, particularly non-institutional investors to access the bond market, their operations were outside Sebi's regulatory purview, the regulator noted.

After obtaining registration as a stock broker in the debt segment of a stock exchange, an entity would have to apply to the bourse to act as an OBPP.

In its application, the entity will have to ensure that roles and obligations, technology, operating framework -- access and participation, Know Your Client (KYC) for on-boarding investors and sellers and risk profiling of investors -- are complied with.

The entity would have to ensure compliance with the minimum disclosure requirements. It would also have to disclose on its platform all instances of conflict of interest, if any, arising from its transactions or dealings with related parties.

Further, the entity needs to have a comprehensive risk management framework covering all aspects of its operations and would have to ensure that risks associated with its operations are identified properly and managed prudently.

The OBPP concerned would be required to have appropriate safeguards to deal with exigencies like suspension of trading in debt securities, cancellation of orders by the investors and sellers, and malfunctions in the use of its systems by investors and sellers.

Further, the OBPP would have to keep the stock exchanges informed of events resulting in disruption of activities or market abuse without undue delay.

"The entity is required to maintain all data relating to its activities in an easily retrievable media and maintain confidentiality and security of all data relating to its activities and strictly control access to such data," Sebi said.