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    SEBI weighs plan to start exchange for corporate bonds, fixed income derivatives

    Synopsis

    The proposed trading platform intends to focus on the wholesale mkt where institutional clients like banks, MFs, insurance cos & primary dealers can directly trade.

    MUMBAI: Capital market regulator Securities and Exchange Board of India is examining a proposal by ICAP India - the subsidiary of the world's largest inter-dealer broker ICAP plc - to set up an exchange for corporate bonds and fixed income derivatives.

    The proposed trading platform intends to purely focus on the wholesale market where institutional clients like banks, mutual funds, insurance companies and primary dealers can directly trade. It would be similar to the negotiated dealing system - the anonymous screen-based trading platform for government securities that is restricted to institutions and monitored by the Reserve Bank of India.

    "We are going through the application. No decision has been taken," a regulatory official told ET.

    In a move to increase competition among bourses, SEBI recently gave MCX group the green light to set up an equity trading platform, which is expected to start operations this year.

    While bond deals worth only Rs 3,000 crore get reported in exchanges, a significant number of bilateral deals (where brokers are not involved) go unrecorded every day. The daily volumes in interest rate swaps - used by institutions to move from fixed to floating intrest rate or vice-versa - is around Rs 10,000 crore.

    "The success of a new exchange for fixed income products will depend on the settlement and guarantee infrastructure and the nature of the products and contracts that regulators approve. Interest rate futures in its present form did not take off," said a senior trader in government securities.

    ICAP India, in which ICAP plc holds 51%, is an inter-institutional broker in bonds, interest rate swaps and foreign exchange. As per plans, the firm's 200 clients would be offered membership in the proposed exchange. Other brokers cannot become members of such an exchange. The balance 49% stake in ICAP India is with Manish Sabharwal, CEO of the staffing company TeamLease Services, and his associates. If SEBI approves the venture, ICAP plc will have to lower its stake in ICAP India to 49% to fulfil foreign investment regulations. "We have put in an application. We are awaiting SEBI's decision," said Sabharwal.

    Under new guidelines, SEBI can give exchanges a three-year waiver to comply with the minimum shareholding norms. The regulator has allowed ICAP India to incorporate a company, ICAP Institutional Exchange of India, which aims to offer, subject to regulatory clearances, fixed income products in the first phase followed by segments in foreign exchange.

    The venture will count on the knowledge and expertise of ICAP plc whose daily volumes exceed $1 trillion, of which more than 50% is transacted electronically. In India, corporate bonds and interest rate derivatives are currently transacted primarily by voice brokers in the OTC (over-the-counter) market.

    Regulators and law makers across markets have been pushing for new rules after the banking crisis of 2008. The G-20 countries, of which India is a signatory, had said in September 2009 that all standardised OTC derivatives be traded in exchange systems by the end of 2012 and where possible centrally cleared. In a step towards this, a working group comprising representatives of the Committee on Payment and Settlement Systems (CPSS), the International Organization of Securities Commissions (IOSCO), and the European Commission (OTC Derivatives Working Group) was formed to set out policy options. Even though the market is divided on the subject, the Dodd Frank Act of the US and European Commission draft regulations also favour new regulations and transparency for OTC derivatives.





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    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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