Regulatory framework for online bond platform providers

Regulatory framework for online bond platform providers

Recently the Securities and Exchange Board of India (SEBI) has come up with a regulatory framework for online bond platform (OBPs) providers.

According to SEBI OBP is an electronic system separate from a recognized stock exchange. Debt securities listed or to be listed in future are available and traded in it.

Bonds India, Goldenpi etc. are prime examples of OBP.

Under the new rules, OBP will have to obtain a certificate of registration from SEBI to be a stock broker. Apart from this, they also have to ensure data governance.

Why were these rules needed?

  • SEBI was not regulating OBPs. Most of them were run by fintech companies.
  • OBPs provide non-institutional investors with an opportunity to access the bond market. For this, it is necessary to ensure transparency.

What is a bond?

  • Bond is a debt instrument. By this an investor usually lends money to a corporate or government for a fixed period of time. This loan is given at varying interest rates or at a fixed interest rate.
  • Bonds are used by companies, municipalities, state and sovereign governments to raise money. Bonds provide borrowing for a longer period.
  • On the other hand, high quality debt securities are lent and taken for short periods in the money market. These securities have an average maturity period of one year or less.

Bond types –

  • Fixed Rate Bonds: The interest rate is fixed during the entire term of such bonds.
  • Floating Rate Bond: Interest rate keeps on fluctuating (coupon) according to the current market reference rate.
  • Zero Interest Rate Bond: In this the investors do not receive any regular interest. In this, the issuer pays only the principal amount to the bond holders.
  • Inflation-indexed bonds: In this, the coupon payments are adjusted with inflation. For this the payments are linked to certain inflation indicators.

Source – The Hindu

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