Presence of primary dealers in corporate bond market needed just as in G-secs market: Sebi’s G Mahalingam

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July 24, 2020 2:30 AM

Talking about the need for a repo market for corporate bonds, he explained that a cooperative effort between market participants and government is required. 

Talking about the need for a repo market for corporate bonds, he explained that a cooperative effort between market participants and government is required.

The presence of primary dealers in the corporate bond market will play an important role in boosting the market-making in this space just as in the government securities market, said G Mahalingam, whole time member at the Securities and Exchange Board of India (Sebi). Mahalingam was speaking at the capital market conference organised by FICCI on Thursday.

“Today, if we have to say that the primary dealers have done a superb job as far as the government securities market is concerned, that is an understatement. I think they have been really doing a lot to ensure that this government securities market is robust. There is a lot of demand-supply which is built-in; there is a lot of inventory which is being accumulated and off-loaded by the primary dealers which brings in a huge amount of liquidity into the market. Should we not have these kind of primary dealers in the corporate bond market also? The undoubted answer here is — yes, we need. Without the primary dealers, market-making is perhaps not going to take off at all,” he said.

Mahalingam also said that the primary dealers in the government securities market could provide a big help with their experience.

“My personal opinion is that the primary dealers stationed for the government securities market, with their experience and expertise in the government securities market, should be able to lend an excellent helping hand as far as the corporate bond market is concerned. They are the natural entities to take that place. But then let’s assume there are other entities who are willing to dabble into the corporate bond market. I don’t think Sebi should be averse to it,” he said.

Talking about the need for a repo market for corporate bonds, he explained that a cooperative effort between market participants and government is required.  “The Treps market for the government securities is a very important market. We need this kind of funding repo market for the corporate bonds and that repo market will have to be brought into existence by the cooperative effort of the participants in the market and with some amount of initial contribution coming in from the government itself. We are talking about a central counter-party mechanism for this kind of a repo market where you have a guaranteed fund. This fund needs to be funded by, maybe the market participants and may be with the initial contribution of the government,”Mahalingam said.

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