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Finsec Tracker on "Increase In Payment Methods For Corporate Bond Investments"

Finsec Law Advisors

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Easing the settlement framework on Request for Quotation (RFQ) platform, by way of a circular on January 09, 2023, SEBI has clarified that in addition to the Real-Time Gross Settlement Channel (RTGS), trades executed on the RFQ platform can also be settled by payment mechanisms provided by banks/payment aggregators.

RFQ is an electronic interface launched in February 2020 to enable multi–lateral negotiations on a centralized online trading platform. This brought in transparency in over the counter deals that are negotiated bilaterally. It was introduced as a ‘participant based model’ wherein all regulated entities, listed body corporates, institutional investors and all India financial institutions were eligible to register and transact. In their bid to regulate and expand the corporate bond market, in October 2022, SEBI had permitted stock brokers registered under the debt segment of stock exchanges to place bids on the RFQ platform on behalf of their clients. To make it easier for retail investors to trade in corporate bonds, SEBI also reduced the face value of listed debt securities and non-convertible redeemable preference shares from INR 10 lakhs to INR 1 lakh. I November 2022, SEBI had stipulated that all orders by online bond platform providers be also routed through the RFQ platform.

Currently, stock exchanges use RTGS to settle trades executed on the RFQ platform. While SEBI had reduced the face value of listed securities traded on RFQ platform to INR 1 lakh, the minimum transaction value to use the RTGS channel is currently INR 2 lakhs. The stock exchanges and market participants had sought a clarification from SEBI whether other payment mechanism can be employed for settlement of trades on the RFQ platform. In response to this, SEBI issued the current circular clarifying that, in addition to the existing payment mechanisms, the mechanisms provided by banks/payment aggregators authorised by RBI, may also be used.

This clarification removes the unintended hurdle of RTGS minimum limit that existed even subsequent to the reduction of face value. It will open more payment avenues for investors and will scale up the engagement of retail investors with the bond market.