New SEBI Rules Might Hinder India’s Promotion Of Bond Market

New SEBI Rules Might Hinder India’s Promotion Of Bond Market

India has been planning to expand and boost its bond market but has faced an unprecedented blow from the regulator. The Securities and Exchange Board of India (SEBI) aims to change the way trading activities work in the country. The new SEBI rules are focused on strengthening their control on trading platforms that enable one to make investments in company debt by making just a few clicks.

New SEBI Rules In A Nutshell

The proposed framework has been appreciated by many as they think this might aid in better regulation of the Indian bond market. However, some of the proposals for new SEBI rules might affect the growth of this market negatively. This is because it could hinder liquidity production as the trade of company debt that is not listed would be completely prohibited.

In addition, platforms would be restricted from selling privately placed corporate notes to non-institutional investors immediately after their acquisition. Also, the investors would have to consider different routes for trading that had been less explored until now. The Indian bond market participants are allowed to give their inputs on the matter till August 12, 2022.

One of the law firm’s Shardul Amarchand Mangaldas & Co partners, Shilpa Mankar Ahluwalia, quoted by the Business Standard, commented on the new set of rules by SEBI saying:

“The trade-off is very often between creating depth in the market and ensuring investor protection. The regulator ideally needs to strike a fine balance between investor protection and innovation, also recognizing that online bond platforms have the potential to widen access and deepen the corporate bond market. The regulator is concerned about private placements becoming shadow public offerings via distribution on online platforms given that the rules, compliance, and disclosure requirements for a public offering are much more stringent and detailed.”

Boosting India’s corporate bond market is one of the major government initiatives that are undertaken to meet PM Narendra Modi’s pledge of doubling the size of the country’s economy to $5 trillion by 2025. It is still uncertain how the new SEBI rules might affect these efforts, it would be clear only if the pending official decision on it is made.

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Sahil Patil

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