In this article, we delve into the newly introduced regulatory framework for Online Bond Platform Providers (OBPPs) by the Securities and Exchange Board of India (SEBI). We also explore the crucial role and various types of bonds in the economic landscape of India.
SEBI’s New Framework for Online Bond Platform Providers
SEBI recently issued a regulatory outline for OBPPs to streamline their operations. According to this new system, OBPPs should be companies incorporated within India, mandatorily registering as stock brokers in the debt segment of the stock exchange. This framework is effective immediately.
The Requirement for a Regulatory Framework
The bond market offers significant scope for growth, particularly in the non-institutional sector. Therefore, regulatory checks and balances have become crucial for maintaining transparency and protecting investors. Over the past few years, several OBPPs have begun offering debt securities to non-institutional investors, typically fintech companies or entities backed by stock brokers. The operations of these OBPs previously fell outside SEBI’s regulatory jurisdiction.
New Rules for Bond Platform Providers
Once an entity obtains registration as a stock broker in the debt segment, it would need to apply to the same stock exchange to function as an OBPP. A mandatory registration certificate from SEBI is now required to operate as an online bond platform provider. Entities already functioning without this certificate as of November 9, 2022, can continue operating for three more months. However, they must comply with SEBI’s specifications. Compliance with minimum disclosure requirements and disclosure of conflict of interest instances are compulsory.
Understanding the Bond Market
Bonds are tradeable assets issued as units of corporate debt by companies. The bond market is a marketplace that allows investors to buy debt securities from national governments or corporations. These entities primarily use the proceeds from bonds to fund infrastructural enhancements or pay down debts.
Types of Bonds
There are several types of bonds available in the market, including convertible bonds, fixed coupon rate bonds, floating coupon rate bonds, zero coupon bonds, cumulative coupon rate bonds, inflation indexed bonds, and sovereign gold bonds. Each type of bond has its unique features and dynamics.
About Online Bond Platform (OBP)
As per SEBI, an OBP is an electronic system, other than a recognised stock exchange, on which debt securities are offered and transacted. OBPP implies any person or entity operating or providing such a platform.
The article also includes previous year questions from UPSC Civil Services Examination related to various aspects of the bond market for reference.
