SEBI Directs FPIs To Use RFQ For Atleast 10% Of Their Corporate Bond Transactions

SEBI hopes to increase liquidity on the RFQ platform and transparency and disclosures regarding investments in corporate bonds through this measure.

RFQ platform provides a huge variety of debt securities for trading. 

Source : PTI

The Securities and Exchange Board of India (SEBI) on Monday directed Foreign Portfolio Investors (FPIs) to use the Request For Quote (RFQ) platform on the stock exchanges to place at least 10 per cent of their corporate bond trades.

According to a PTI report, the watchdog issued a circular stating the directive will be implemented from October 1. SEBI hopes to increase liquidity on the RFQ platform through this measure. It also aims to increase the transparency and disclosures regarding investments in corporate bonds, hoping this will in turn attract more investment from FPIs in the segment. 

Launched on the BSE and NSE in february, 2020, RFQ is an electronic platform that facilitates multi-lateral negotiations on a centralised online trading platform with straight-through processing of clearing and settlement to finalise the transaction. 

RFQ platform provides a huge variety of debt securities for trading. 

The market regulator noted in its circular, “With a view to increase liquidity on RFQ platform vis-a-vis trading in Corporate Bonds by FPIs, it is decided that FPIs shall undertake at least 10 per cent of their total secondary market trades in corporate bonds by value by placing/seeking quotes on the RFQ platform of stock exchanges, on a quarterly basis.”

SEBI further emphasised the importance of maintaining transparency on the platform and informed that it has already given out a similar directive to other intermediaries like alternative investment funds (AIFs), portfolio management services (PMS) and stock brokers. 

The framework has been issued after the watchdog issued a consultation paper last month on the topic. The paper stated that the total contribution of FPIs in corporate bond investments is low and the number of such transactions taking place on the RFQ platform is even lower, the report noted.

The paper further specified that only 4.5 per cent of the total trades in corporate bonds made by the FPIs were carried out via the RFQ platform in the fiscal year 2022-23. For the same period, FPIs’ contribution to total investments in corporate bonds made by various entities on the RFQ platform was only 0.78 per cent.