Stock exchanges may well be working overtime to create a vibrant debt market, but question marks still remain on the kind of entities that will provide the much-needed liquidity to the segment that has largely been over the counter (OTC) in nature.
According to people familiar with the matter, the launch of the dedicated debt segment will have to wait for some more time as regulators sit together to iron out all differences. The segment will see entities from the insurance, pension and banking arena pitch in to create liquidity and their respective regulators will have to give the final go-ahead.
Sources say that the biggest worry for the segment would be the way it would be monitored by various regulatory bodies. While the Securities and Exchange Board of India (Sebi) will be in charge of the segment, the Insurance Regulatory and Development Authority (Irda), Reserve Bank of India (RBI) and Pension Fund Regulatory and Development Authority (PFRDA) will also be indirectly involved.
While RBI has already allowed stand-alone primary dealers (PDs) to become members of such platform for undertaking proprietary transactions in corporate bonds, it is believed that Irda and PFRDA still have some reservations on the scope of involvement of insurance and pension funds, respectively.
The concerns come at a time when exchanges are doing the groundwork for the launch of a debt segment. NSE has been organising workshops for brokers and has been in constant touch with leading corporates, fund houses and insurance players to get them on board the yet-to-be-launched segment.
Sources say that entities like L&T Finance, Shriram Transport Finance, M&M Financial Services, Tata Capital and Muthoot Finance have been sounded out along with insurance players like Life Insurance Corporation of India (LIC), IndiaFirst Life, HDFC Life Insurance, Future Generali and Birla Sun Life Insurance.
The exchange is also in talks with bank majors like Axis Bank, Yes Bank, HDFC Bank and State Bank of India (SBI), along with Deutsche, HSBC and Standard Chartered to join the segment as members and provide liquidity.
?The idea is to get all participants participate actively in the segment and, more importantly, act as members and not just as clients,? said a person familiar with the developments. ?The formal launch is taking time as regulatory bodies like Irda, PFRDA, RBI and even Sebi have to teak the norms to allow entities under their jurisdiction to participate in the segment,? he added.
While presenting the Union Budget 2013-14, finance minister P Chidambaram had said that stock exchanges would be allowed to introduce a dedicated debt segment on the exchange and that banks and primary dealers will be allowed to become proprietary trading members. ?In order to create a complete market, insurance companies, provident funds and pension funds will be permitted to trade directly in the debt segment with the approval of the sectoral regulator,? he had said.