SEBI looking to mandate FPIs to use the RFQ platform for 10% of secondary transactions (July 05, 2023)[1]

Foreign Portfolio Investors (FPIs) would be required to conduct at least 10% of the value of their secondary market corporate bond trades through the RFQ (Request for Quote) platform of the stock exchanges, according to a proposal by the Securities and Exchange Board of India (SEBI). The plan aims to improve the disclosures around investments in corporate bonds as well as the liquidity on the RFQ platform, which will in turn stimulate FPI investment in the corporate bond market. An electronic platform called RFQ, which became operational on the Bombay Stock Exchange and National Stock Exchange (BSE and NSE respectively) in February 2020, allows multilateral discussions to be conducted on a centralized online trading platform with straight-through clearing and settlement processes to complete the trade. The RFQ platform offers trading in a wide range of debt securities.

Initially, on a quarterly basis, SEBI has proposed that FPIs be compelled to post quotes on the RFQ platform of stock exchanges for at least 10% of the value of their entire secondary market trading in corporate bonds. SEBI is soliciting opinions on the ideas until July 26, 2023. RFQ platforms decreased information asymmetry and elevated transparency in the corporate finance market by providing disclosures consisting of term sheets, price information, and market quotes. This is expected to lead to better price discovery, cheaper costs, and a lot easier commercial transactions.

The RFQ platform’s numerous benefits are anticipated to catapult the Indian bond market into a higher development phase and encourage investments from all parties, including FPIs. However, if the platform’s involvement is deepened and extended owing to adoption by a maximum number of participants, resulting in a higher volume of trades, it was said, the same may be accomplished. Despite the tiny aggregate investment made by FPIs in corporate bonds, a lesser percentage of these trades are carried out using the RFQ platform. During FY2022-23, just 4.5% of all corporate bond trades by FPIs were completed via the RFQ platform. Additionally, only 0.78 percent of all corporate bond trades on the RFQ platform during the year were conducted by FPIs.

[1] https://www.sebi.gov.in/reports-and-statistics/reports/jul-2023/consultation-paper-on-mandating-fpis-to-route-a-specific-percentage-of-certain-transactions-in-secondary-market-trades-through-request-for-quote-rfq-platform-of-stock-exchanges_73525.html