Corp bonds: Sebi asks bourses to have uniform auction mechanism

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New Delhi | February 10, 2017 10:54 PM

Sebi today asked stock exchanges as well as clearing corporations to put in place by March-end a uniform mechanism to auction corporate bonds to deal with settlement shortages and also tweaked the penalty structure with respect to such shortages.

As it works towards deepening the nascent domestic corporate bonds market, Sebi's latest decision has been taken after taking into consideration recommendations of the H R Khan committee and feedback from stock exchanges. (Reuters)As it works towards deepening the nascent domestic corporate bonds market, Sebi’s latest decision has been taken after taking into consideration recommendations of the H R Khan committee and feedback from stock exchanges. (Reuters)

Sebi today asked stock exchanges as well as clearing corporations to put in place by March-end a uniform mechanism to auction corporate bonds to deal with settlement shortages and also tweaked the penalty structure with respect to such shortages. As it works towards deepening the nascent domestic corporate bonds market, Sebi’s latest decision has been taken after taking into consideration recommendations of the H R Khan committee and feedback from stock exchanges.

“Exchanges/ clearing corporations shall introduce an uniform auction mechanism to deal with settlement shortages by March 31, 2017,” Sebi said in a circular. The H R Khan-chaired working group on development of corporate bond market in India had recommended rationalisation of the penalty for ‘financial closeout’ in case of shortage of delivery in the corporate bonds that are traded in the exchange platform.

According to the circular, it has been decided to “review extant penalty structure for financial closeout in cases of short delivery and to put in place a feasible auction mechanism to deal with settlement shortages”.

In case of shortage of delivery, the regulator said stock exchanges and clearing corporations can conduct financial closeout. “The financial closeout would take place at highest price on Trade date (which becomes the trade price) with a 1 per cent mark-up on trade price,” it noted.

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Currently, stock exchanges conduct auction and/or financial closeout with a mark up of 4 per cent on traded price of such corporate bonds in case of shortages.

When there is shortage in securities, including corporate bonds, the exchange concerned orders for an auction to settle the delivery. In case those securities have not been sold in the auction, then the transaction is closed out as per Sebi norms.

In 2013, the Securities and Exchange Board of India (Sebi) issued guidelines for providing dedicated debt segment in the stock exchange for trading, clearing and settlement of debt securities of corporate bonds.

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