Few takers for bond trades on bourses

Nearly three weeks after the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) commenced corporate bond trading, state-run banks, insurers and financial institutions "" the biggest players in this segment "" are yet to actively trade in the market.

Sources said most banks preferred the over-the-counter (OTC) trades as routing it through stock exchange members would add up to costs in the form of brokerage charges. Further, there is no other incentive for them to divert their trades to the exchanges.

Market sources said the exchanges were also not ready with the software for establishing an order-driven trade matching mechanism "" another reason for players to stay away from the platform.

NSE sources, however, clarified that there was no software-related issues, while a BSE spokesman did not respond to an email.

The Securities and Exchange Board of India (Sebi) had directed the BSE and NSE to put in place corporate bond trading platforms from this month.

The trade matching platform, as per the Sebi directive, should be order driven with essential features of the OTC market. Sebi had also asked exchanges to make use of their existing infrastructure for operating the trading matching platform for corporate bonds, with necessary modifications.

Following a Sebi directive, players in corporate debt segment are reporting their trades on the reporting platforms of the BSE and NSE from March this year. But, insurers, which come under the Insurance Regulatory Development Authority, are yet to report their trades in corporate debt on the exchanges, said sources.

At present, trading volumes in corporate bonds shown on the websites of BSE and NSE constitute trades done through both the OTC route and the exchange's trading platforms.

In the last two days, turnover reported on the NSE, has increased to over Rs 1,000 crore from around Rs 300 crore a day, but this is more to do with interest rate movement.

An NSE member said the exchange had a trading platform for corporate debt from 1994 and there was nothing new in the Sebi circular, as far as the wholesale debt market (WDM) members of the exchange were concerned. There are 55 WDM members of the NSE, who are eligible to conduct trading in corporate debt market on the exchange.

As per the Sebi plan, a system of anonymous order matching in corporate bonds is the next stage for developing the corporate bond market. This requires the setting up of clearing corporations for clearing and settlement of debt trades.

A deeper and active debt market is a pre-requisite to generate the necessary long-term funds required for the vital infrastructure sector. However, the introduction of screen-based trading in the debt market would not necessarily mean enhanced retail participation.

"Participation in the corporate bond market is largely restricted to provident funds, financial institutions and insurance funds. Pension funds are not allowed to trade as per regulations. Even if the platform exists, trading may not pick up without the presence of buyers and sellers. This measure may also not translate into a significant increase in retail trading in terms of volumes," said Ramanathan K, Head-Fixed Income at ING Vysya Mutual Fund.

However, this will surely bring some amount of transparency to bond markets. "Screen-based trading will make the trading transparent. While brokers would still be there, it will be easier to do 'price discovery'," said Arun Kaul, GM, Treasury of Punjab National Bank, which is a public sector bank.

Even now, over the counter (OTC) bond trading happens immediately following a new issue.

"Once, another issue enters the bond market, only long-term investors are left, holding on to bonds ", said Raghavan, Head-Fund Management, IDBI Capital.