Corp bonds to trade on bourses from July 1

The much-awaited trading in corporate bonds will start on the National and the Bombay Stock Exchanges from July 1. This is expected to energise the moribund debt market.

The Securities and Exchange Board of India (Sebi) will ask the two stock exchanges to start trading in corporate bonds shortly, sources close to the developments said.

To begin with, trading would be through order matching as recommended by the R H Patil Committee. The committee had suggested various measures to activate the corporate bond market. The anonymous order matching would come into place only at a later stage, when the exchanges were ready, the sources added.

Banks and institutions will be allowed to trade through either the stock exchanges or via the OTC (over-the -counter). If they wanted to go through the stock exchanges, they could conduct the trading through the stock broking members, the sources added.

In order-matching system, the best buy order is matched with the best sell order. Experts said an efficient corporate debt market required a proper order-matching and guaranteed settlement systems.

Earlier this month, the capital market regulator extended the corporate bond reporting platform to the National Stock Exchange (NSE). From January 2, Sebi had asked the players to report the deals in the corporate bond market on the BSE's reporting platform.

All transactions in corporate bonds of the value of Rs 1 lakh or above are required to be reported to the corporate bond platform. As the platform is purely for reporting purposes, the stock exchanges had no role or liability for settlement of these trades. The intermediaries and contracting parties were asked to settle the trades bilaterally.

The move to allow both the NSE and the BSE to start a trading platform is, however, at variance with the Patil Committee's recommendation of a unified exchange for the corporate bond market.

The exchanges have also been asked by Sebi to provide details such as the issuer name, maturity date, current coupon, last price and amount traded, yield and weighted average yield.

The number of trades in the corporate bonds that took place today were 12 and the average traded value was Rs 100 crore. Presently, no trading takes place in the bonds' segment of the BSE.

The Sebi move comes after Prime Minister Manmohan Singh's call, during the inauguration of the Sebi headquarters last year, to activate the debt market.

The Prime Minister had said that the debt markets in India have failed to rise to the expectations. There was a need to make efforts to understand why the debt market has not taken off and to take appropriate policy measures to make it deeper, broader and more liquid, he had said.

A deeper and active debt market would help generate the necessary long-term funds required for the infrastructure sector.

Sebi to issue a circular shortly to both the exchanges

To begin with, it will be order-matching

Banks and institutions have the freedom to trade either through the exchanges or Over-the-Counter

At a later stage, Sebi would allow anonymous order-matching