Sebi amends rule to boost liquidity in secondary market for corporate bonds

Capital markets regulator Sebi has amended stock brokers' rule concerning registration of entities for participation in the tri-party repo segment for corporate bonds, a move that will boost liquidity in the segment.

"No separate registration shall be required for any person registered with the limited purpose clearing corporation as a participant for participating in the tri-party repo segment for undertaking proprietary trades in corporate bonds," the Securities and Exchange Board of India (Sebi) said in a notification issued on Monday.

The move came after the board of Sebi last month approved the proposal to additionally facilitate participation by entities desiring direct participation (not through a clearing member) in repo transactions in corporate bonds of the Limited Purpose Clearing Corporation (LPCC).

LPCC is an entity established to undertake the activity of clearing and settlement of repurchase agreement transactions.

It is expected to facilitate active trading, especially by market makers, by enabling them to finance their inventory of bond holdings through an active repo market. This in turn is expected to improve liquidity in the corporate bond markets.

In September 2020, Sebi's board approved a proposal to facilitate the setting up of an LPCC.

Separately, the regulator has tweaked Securities Contracts rules.

Under the new rule, in the event of a clearing member or participant failing to honour his settlement obligations, the Fund would be utilized to complete the settlement.

Further, the corpus of the Fund needs to be adequate to meet the settlement obligations arising on account of failure of clearing member or participant.

Every recognised clearing corporation needs to establish and maintain a Fund to guarantee the settlement of trades executed in respective segments of a recognised stock exchange.