Market regulator Securities and Exchange Board of India (SEBI) today notified guidelines for having a separate debt segment on bourses wherein banks will also be allowed to trade on exchanges.

The move is part of overall efforts to develop the country’s corporate debt market, which is at a nascent stage. Generally, debt securities are debentures, bonds, deposits, notes or commercial paper.

The SEBI said the new regulations would come into force from today.

The regulator said an existing stock exchange or new bourse willing to set up debt segment is required to make an application with SEBI, providing operational, regulatory and any other necessary details.

The SEBI said the minimum capital deposit is required to be maintained by a stock broker for trading in the debt segment would be Rs 50 lakh, while the required amount is Rs 1 crore for a self-clearing member and Rs 3 crore for clearing member.

The regulator noted that an entity seeking to act as trading member of the debt segment of the bourse or self-clearing member of the clearing corporation is required to make applications for each activity in a specified manner by SEBI.

The debt segment of the stock exchange or clearing corporation, as the case may be, would forward such application to SEBI with its recommendation within 30-day from the date of its receipt.

These members are required to abide by the certain code of conduct such as obtaining details of the prospective clients in ‘know your client’ format, furnish ‘risk disclosure document’ disclosing the risk inherent in trading in debt instruments to the prospective clients and deposits margin.

In case of violation of any regulation, such members would be liable for penalty.

In order to grant registration certificate to an applicant, the SEBI would see whether the entity is eligible to be admitted as a trading or proprietary trading member of debt segment of a stock exchange.

The SEBI would also take into account whether the applicant has the necessary infrastructure like adequate office place, equipment and manpower to effectively undertake his activities.

The applicant is subjected to disciplinary proceedings under the rules, regulations and bylaws of any stock exchange.

(This article was published on April 5, 2013)
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