The recent measures taken by the Securities and Exchange Board of India (SEBI) to boost retail participation in corporate bonds will go a long way in building the market, paving the way for more issuances with smaller face values, believes Zerodha’s founder and chief executive officer Nithin Kamath.
In a tweet, Kamath stated, “We’ve always believed that bonds and maybe not stocks are the right stepping stone for most Indians”—better returns than FDs but lower risk than stocks.
Following representations from various market participants, the capital market regulator drastically reduced the face value of debt securities, including non-convertible debentures, issued on a private placement basis to Rs 1,00,000 from Rs 10,00,000.
Not only will more investors be able to participate in the trading lot and face value, but it will also increase the liquidity of the corporate bond market.
Traditionally bonds have been an instrument for high-net-worth individuals, but these measures will now see even the retail community entering the market.
In addition, SEBI made it possible for registered stock brokers to place bids on behalf of their clients on the RFQ debt trading platform in order to broaden participation in the corporate bond market.
The electronic platform known as RFQ makes it possible to conduct complex, multilateral negotiations on a single, centralized online trading platform. Prior to this, this platform only allowed mutual funds and portfolio management services to make some trades
The relaxation of the payment method was another important step that SEBI took to make bond trading for retail investors easier.
Previously, clearing corporations were the only ones that accepted real-time gross settlement (RTGS) as a payment method for all bond transactions. As a result, the default minimum transaction size was raised to more than Rs 2 lakh. On the other hand, Sebi made it possible to make trades on the RFQ platform using other payment methods than RTGS on Tuesday.
As a result, Kamath explained, clearing corporations can also be used to settle bond trades with a value of less than Rs 1 lakh.