Sebi, RBI Push Bond Derivatives to Bolster Market Liquidity

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AuthorAnanya Iyer|Published at:
Sebi, RBI Push Bond Derivatives to Bolster Market Liquidity
Overview

Indian market regulators Sebi and Reserve Bank of India (RBI) are collaborating to introduce bond derivatives, aiming to significantly enhance liquidity and depth in the country's bond market. Sebi Chairman Tuhin Kanta Pandey highlighted the need for greater issuer participation and broader credit ratings to develop a robust yield curve, alongside initiatives to boost retail investment and education in corporate bonds.

  • Sebi, RBI Forge Ahead on Bond Derivatives
    Securities and Exchange Board of India (Sebi) Chairman Tuhin Kanta Pandey announced on Friday that the market regulator is working closely with the Reserve Bank of India (RBI) to facilitate the development of bond derivatives. This strategic collaboration aims to unlock new avenues for investment and significantly improve liquidity and depth within India's burgeoning bond market.

  • Enhancing Market Depth
    Pandey stated that while secondary trading in bonds is active, it requires substantial improvement. He believes bond derivatives will serve as a crucial tool for creating further liquidity, making the market more efficient for investors. The ongoing efforts are designed to transform the bond market into a more dynamic and accessible platform.

  • Addressing Market Constraints
    Despite the bond market's growth, expanding from 40% to 60% of total bank credit to industry and services in recent years, it still lags behind global benchmarks like China. A key challenge identified is the limited number of issuers and a scarcity of diverse credit-rated bonds, particularly A-rated and below, which are essential for establishing a proper yield curve.

  • Boosting Retail Participation
    To encourage broader involvement, Sebi recently reduced the minimum investment threshold for retail investors in bonds from ₹1 lakh to ₹10,000. Pandey also pointed to differential tax treatment as an impediment, stressing the need for enhanced retail education on the benefits of corporate bonds, including their tradability before maturity in an active secondary market.

  • Future Outlook
    Pandey hinted at an upcoming circular concerning the close auction session, following a consultation paper released last year. He emphasized that capital markets are increasingly central to India's development, efficiently channelling household savings into productive investments and supporting economic expansion.

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