Online bond platforms ask Sebi to ease sales, automate securities database to make market-segment more retail friendly

The OBPP Association said that they have found Sebi consistently open and receptive in their interactions.

Online bond platforms have asked the regulator to ease the sell side of transactions and allow automated updating of the securities database to make the market more retail friendly.

Easing the sale of debt instruments - currently a cumbersome process - is on top of the newly formed Online Bond Platform Providers Association's laundry list for the Securities and Exchange Board of India (Sebi).

"As of now, if a person wants to sell a bond, they have to physically go out and fill a delivery instruction slip (DIS), hand it over to the broker and then the broker can further the transaction," Tirth Shah, co-founder of The FixedIncome and secretary of the association, told Moneycontrol.

This system came into being because the bond market was designed largely for institutional investors, according to Suresh Darak, founder of Bondbazaar and vice chairperson of the association.

"This is perfectly fine for institutional transactions in which the deal value is big (in hundreds of crores). But when it comes to retail investors, this process needs to be digitised and made seamless because the transaction sizes are small, sometimes even Rs 1,000 to Rs 50,000," said Darak.

Also read: Sebi mandates direct transfer of securities to client's demat account

Retail benefits

Shah said the association is also asking for automated updating of the securities database, which has details of bonds, including the price, coupon rate and the portion of the issue that was subscribed to, and is currently updated manually. Automation will help make the database more accurate and build investor confidence.

Darak explained that institutional investors have the operational girth to check the authenticity of the database. This isn't available to retail investors.

Members of the association told Moneycontrol that regulatory interventions have done exceptionally well so far, and they look forward to other measures. There are 27 registered online bond platforms, most of which are in the process of registering with the association.

The association, which was launched on May 29, aims to represent itself to external stakeholders including regulators and the exchanges. Sebi is now working with a new regulatory architecture where industry bodies, as industry standard forums or ISFs, are encouraged to be part of the policy-implementation process. The OBPP Association is one such ISF.

Also read: 7.3 times in 1,000,000,000,000,000,000,000,000,000: Sebi schools front-running duo on probability of trades coinciding with Big Client's

Welcome interventions

The most welcome regulatory interventions, according to the association officials, were allowing the registration of the platforms and reducing the face value of corporate bonds from Rs 1 lakh to Rs 10,000. According to them, registration helped build trust among investors and a smaller face value made the debt market more accessible to retail investors.

"The best thing to happen was the formulation of the OBPP regulatory framework," said Aditi Mittal, founder of IndiaBonds and chairperson of the association. On November 14, 2022, Sebi issued a framework for the registration and regulation of OBPPs.

"There were a lot of OBPPs that were selling fixed-income products and putting regulatory guidelines in place was a proactive way to instil confidence in investors by saying that the regulator is overseeing the platforms," said Mittal.

The framework gave confidence to participants because there were clear guidelines that would ensure "operational sanity and uniformity," said Mittal. They also helped entities that were otherwise sitting on the fence to decide to participate in this segment, she added.

The association members said they found the regulator open, proactive, receptive and approachable.

"There may be aspects in which the regulator is not knowledgeable, such as the operational details of the industry, but they have shown an openness to sitting with us and having face-to-face meetings (to get more clarity) rather than just sending us data," said Nishant Prasad, chief compliance and legal officer at Wint Wealth and joint secretary of the association.

As a forum, the OBPP Association hopes to follow the example of the Association of Mutual Funds of India (AMFI).

Also read: Odd Defence: Company says no one stopped it from committing violation; Sebi issues Rs 5 lakh fine

"For one, AMFI succeeded in increasing awareness about mutual funds as a product (with their "Mutual Fund Sahi hai" campaign making the product recognisable even to a child). Secondly, the mutual fund industry was growing by leaps and bounds, and it needed standard operating procedures for various aspects such as structuring schemes. AMFI worked closely with the regulator on this. AMFI also ensured that problems the industry faced in its nascency did not end up as bottlenecks to growth," said Darak.