The National Stock Exchange (NSE) on Tuesday launched a request for quote (RFQ) platform for execution and settlement of trades, which will allow market participants to transact in debt securities.
According to market participants, this move will lead to more depth, liquidity and transparency in bond markets.
According to NSE MD & CEO Vikram Limaye, corporate bond trading today is over the counter, where investors negotiate directly with each other or through broker-dealers. “Trading continues to be bilateral and voice-driven, though settlements have been streamlined through exchange clearing corporations. A growing primary issuance market needs a liquid and transparent secondary platform.
“Electronic trading has been on the rise globally in recent years and investors have found value in working through an RFQ platform. RFQ platforms are playing an important role in changing the structure in bond markets globally,” he said.
The RFQ platform will allow market participants to transact in debt securities by requesting quotes from number of participants simultaneously and transact based on mutual agreement on the deal parameters. The list of eligible securities for RFQ platform would include corporate bonds, securitised debt instruments, municipal debt securities and government securities, etc.
In international markets, secondary bonds are not very liquid except perhaps only in the US, where daily trade as a percentage of corporate bond outstanding is over 1%. In India it is 0.23% and in China and Japan, it is 0.05% and 0.07% , respectively.
“So, among the Asian countries, India is not doing bad. But we fully appreciate that daily trade of 0.23% of corporate bonds outstanding is hardly any trade and there’s a need to have liquidity in the secondary market to develop and have more participation in the bond market. So, in this context RFQ becomes more relevant and important,” Sebi chairman Ajay Tyagi said.