The Securities and Exchange Board of India (Sebi) on Thursday announced proposed amendments to the norms governing the Electronic Book Provider (EBP) platform and the Request for Quote (RFQ) platform. These changes aim to boost liquidity in the corporate bond market and improve transparency in debt issuances. By refining these mechanisms, Sebi intends to streamline the private placement process, reduce settlement times, and align market practices with global standards.
Lowering EBP Threshold to Expand Participation
Sebi has proposed making the EBP platform mandatory for all private placement issues exceeding ₹20 crore, a significant reduction from the current threshold of ₹50 crore. This change will bring more bond issuances onto a regulated and transparent platform, thereby enhancing investor confidence. Lowering the threshold allows more corporate bond issuers to access a well-structured marketplace, fostering greater liquidity and better price discovery.
In addition, Sebi has proposed that issuers of private placements of Investment Infrastructure Trusts (InvITs) and Real Estate Investment Trusts (REITs) must use the EBP platform for issues exceeding ₹1,000 crore. These changes will ensure a standardized approach to private placements, reducing information asymmetry and improving market efficiency.
Greenshoe Option Reduction to Balance Market Dynamics
Currently, issuers can use a greenshoe option up to five times the base issue size, which allows them to retain excess subscription beyond the initially offered amount. Sebi has proposed reducing this limit to three times the base issue size. This adjustment seeks to balance issuer flexibility with market stability, ensuring that excess issuance does not disrupt pricing mechanisms or create volatility in the corporate bond market.
Faster Settlement and Listing to Enhance Market Efficiency
Sebi has suggested a transition to a T+1 settlement cycle for transactions on the EBP platform, down from the existing cycle. This move will improve liquidity by accelerating the availability of funds and securities post-transaction. Additionally, the regulator has proposed shortening the listing time from T+3 to T+2, reducing the period between issue closure and market availability. This enhancement aligns with global best practices and ensures that corporate bonds are listed and tradable more quickly.
Mandatory Open Bidding for Large Issues
To promote transparency and price discovery, Sebi has proposed mandatory open bidding for all private placements exceeding ₹1,000 crore. Open bidding will allow investors to view competing bids in real time, fostering competitive pricing and reducing the chances of mispricing or opaque transactions. This change ensures that market participants receive fair value while preventing preferential allocation of bonds to select investors.
Aligning RFQ Platform with Government Securities
For the RFQ platform, Sebi has recommended aligning the yield-to-price computation for non-convertible securities with government securities. This adjustment aims to simplify pricing mechanisms, reducing complexity for investors and traders in the bond market.
Sebi has clarified that cash flow dates for interest, dividend, and redemption payments will no longer be adjusted for day count conventions. Instead, the due date of payment, as per the original cash flow schedule, will serve as the reference point. By standardizing these calculations, Sebi seeks to improve consistency and ease of transaction processing in the bond market.
Impact on Market Participants
The proposed changes will have far-reaching implications for issuers, investors, and intermediaries in the corporate bond market. Issuers of private placements will need to adapt to the new EBP threshold, ensuring compliance with increased regulatory oversight. Investors, particularly institutional participants, will benefit from improved transparency, faster settlement cycles, and more efficient pricing mechanisms.
The shift to a T+1 settlement cycle will necessitate adjustments in fund management and operational workflows for market participants. While this change enhances liquidity, intermediaries and custodians will need to refine their processing systems to accommodate faster settlements.
Rationale Behind Sebi’s Proposals
Sebi’s primary objective with these reforms is to enhance liquidity and transparency in India’s corporate bond market. Currently, the market remains relatively illiquid compared to developed economies, with limited secondary market participation. By making the EBP platform mandatory for smaller issuances, Sebi aims to create a more vibrant debt market where price discovery improves and investor confidence grows.
Moreover, aligning yield-to-price computation with government securities will simplify trading in non-convertible securities, making the market more accessible to investors. The introduction of open bidding for large issues ensures that pricing remains competitive, reducing the scope for non-transparent deal-making.
Comparing Global Best Practices
Several developed markets, including the U.S. and European bond markets, have well-structured mechanisms for private placements and secondary market trading. The shift toward shorter settlement cycles aligns India’s market with international standards.
The U.S. corporate bond market, for instance, operates with high liquidity due to transparent trading mechanisms and stringent disclosure norms. By implementing mandatory open bidding and reducing listing times, Sebi is bringing the Indian corporate bond market closer to these global benchmarks.
Challenges in Implementation
While the proposed changes offer several advantages, they also pose challenges in execution. The move to T+1 settlement requires significant adjustments from market participants, including clearing corporations, custodians, and institutional investors. These stakeholders must enhance operational efficiency to meet shorter processing timelines.
Additionally, the reduction in the greenshoe option could impact issuers’ flexibility in managing oversubscription. Companies will need to adjust their issuance strategies accordingly, ensuring that demand and supply balance remains intact.
Industry Reactions and Next Steps
Market participants, including bond issuers, institutional investors, and intermediaries, will have the opportunity to provide feedback on Sebi’s proposals before they are finalized. Early reactions suggest that investors welcome increased transparency and efficiency, while issuers seek clarity on compliance requirements.
The next steps involve stakeholder consultations, impact assessments, and possible refinements before Sebi finalizes the regulatory amendments. Given the regulator’s proactive approach to strengthening India’s debt markets, these reforms are expected to enhance the overall functioning of corporate bond issuances.
Conclusion
Sebi’s proposed changes to the EBP and RFQ platforms mark a crucial step in boosting liquidity and transparency in India’s corporate bond market. Lowering the EBP threshold to ₹20 crore will expand market participation, while mandatory open bidding and shorter settlement cycles will enhance efficiency and pricing accuracy.
By aligning yield-to-price computation with government securities, Sebi simplifies bond trading, making it more accessible to investors. These reforms position India’s corporate bond market for long-term growth, aligning it with global best practices while ensuring a fair and transparent investment environment.
As the consultation process unfolds, industry feedback will shape the final implementation. However, one thing remains clear—Sebi’s regulatory push is set to transform India’s corporate debt market, making it more dynamic, liquid, and investor-friendly.
