Sebi plans to put in place a framework for consolidation of debt securities as part of efforts to deepen the corporate bond market and ensure better price discovery avenues for investors. With an increase in corporate bond issuances in recent years, the markets regulator is looking at ways to boost overall liquidity in the debt securities segment.
A proposal to have a framework for consolidation and re- issuance of debt securities is to be discussed at the board meeting of Sebi next week, according to a senior official. The framework would be for securities issued under the ‘Issue and Listing of Debt Securities’ regulations of Sebi.
Trading of corporate bonds in the secondary market has increased in recent years and stood at Rs 14.7 lakh crore in the last financial year. The amount was just Rs 1.48 lakh crore in 2008-09 period.
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However, liquidity in the secondary market for these bonds has not picked up much, especially in comparison with primary market issuances.
A specified framework for consolidation and re-issuance of debt securities would help in capping the fragmented issues and could be a possible solution to improve liquidity, the official said.
Besides, a liquid corporate bond market would help in better price discovery ways, the official added. Liquidity in the secondary market for corporate bonds could be increased by way of minimal number of ISINs (International Securities Identification Numbers). ISIN are used to number specific securities.
Generally, investors trade in corporate bonds that are freshly issued by a particular issuer. As a result, the outstanding securities of the same issuer becomes mostly illiquid.
In order to increase liquidity as well as ensure that an issuer’s ability to raise funds through debt securities is not curtailed, the proposal focuses on minimising the number of ISINs.
With more entities tapping the route for mopping up funds, private placement of corporate bonds rose to Rs 6.4 lakh crore in 2016-17 whereas the same was at Rs 1.18 lakh crore in 2007-08.