The Securities and Exchange Board of India (Sebi) is planning to roll out a distribution framework for fixed income products soon, people aware of the development told FE.
“There is a lot of noise out there—mis-selling by unregulated players, and aggressive advertising, which underscore a clear need for regulation to address it. Therefore, it is high time to come out with a distribution framework,” said one of the sources.
Under the proposed framework, there will be two categories of fixed-income securities distributors. The first will include already regulated entities such as non-banking finance companies, registered investment advisers, research analysts and stock brokers.
What will the second category contain?
The second category will comprise entities that have cleared a certification programme prescribed by Sebi or stock exchanges, the person said. Currently, there is no dedicated regulatory framework for fixed-income distributors.
The distributors will work on behalf of online bond platform providers(OBPPs) to facilitate transactions. OBPPs will be required to pay distributors a fee, which can be mutually decided.
They will not be allowed to operate as OBPPs and must disclose to investors the platforms they are associated with. They will also be required to comply with strict advertising norms.
An email sent to Sebi seeking comment remained unanswered till the time of publishing.
“This has been a long-needed push for fixed income products. A proper distribution framework will help grow the retail investment in the bond market,” said another source.
Sebi’s worry over mis-selling and unregistered platforms
Sebi’s worry over mis-selling and unregistered platforms was reflected in a communication issued last month. The regulator said it had observed certain entities, including fintech firms and stock brokers, offering services akin to OBPPs without obtaining registration from the stock exchanges. It advised investors to avoid such platforms and verify registration status before transacting.
This was the second such warning this year. In July, stock exchanges, in a joint advisory, cautioned investors about bond trading risks, urging them to assess credit ratings, issuer quality, liquidity, settlement and tax considerations, and to ensure transactions are conducted only through registered OBPPs
The new framework will help retail investors seeking exposure to the fixed income market, enabling them to invest with greater awareness and protection.