To curb the menace of the online bond platforms that mushroomed like e-commerce websites in India, market regulator SEBI has said only listed bonds or proposed to be listed debt securities can be sold to retail investors. India has a bond market worth trillions of rupees but it does not attract traders like in equities on the BSE and the National Stock Exchange (NSE). Instead, tens of websites, which call themselves fintech companies, mainly backed by large stock brokers, started selling bonds on their platforms to retail investors without any regulatory oversight. SEBI has now specified norms to bring them under its purview

SEBI has said that Online Bond Platform Providers (OBPPs) would be companies incorporated in India and they should register themselves as stock brokers in the debt segment of the stock exchanges, effective immediately. The move is likely to rev-up bond volumes on the BSE and NSE.

“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 OBPs, measures for mitigation of payment. While OBPs provide an avenue for investors, particularly non-institutional investors to access the bond market, their operations were outside regulatory purview,“ Sebi said.

OBPP platform

Earlier, SEBI had also put out a detailed platform for entities operating or desirous of operating as OBPPs.

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.

Further, the entity will be required 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. They will need 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, SEBI said. OBPPs will need to keep stock exchanges informed of events resulting in disruption of activities or market abuse without undue delay and should maintain data relating to its activities in an easily retrievable media. It will have to ensure confidentiality and security of all data. 

Legal experts say there will be initial disruptions due to SEBI dictat but could go a long way in developing the bond markets. 

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