The Securities and Exchange Board of India wants to introduce a repo (repurchase) market in corporate bonds. The move follows the willingness of the two leading bourses -- the BSE and the NSE -- to have a risk-free clearing system to undertake corporate bond repos.
The capital market regulator would soon write to the Reserve Bank of India to allow repos in corporate bonds, which were expected to boost the liquidity in the corporate debt market, said sources.
In a repo trade, a market participant pledges a corporate paper in exchange for funds for a specific period and at a rate determined by the market.
Repo transactions are currently permitted only in the Central government securities, treasury bills and state development loans.
At a meeting with Sebi officials last Friday, the BSE and NSE officials made presentations on their readiness to have a risk-free clearing system to undertake repos.
The Sebi has favoured repos after the trading volumes in corporate bonds crossed Rs 60,000 crore (Rs 600 billion) during this calendar year, which is decent enough.
The RBI, which regulates the money market instruments, had put certain conditions such as sufficient liquidity, risk-free clearing system and so on for allowing repos in corporate bonds.
Considering that both the conditions are now available, the Sebi hopes the RBI would give its nod for the introduction of repos in corporate bonds.
According to the Sebi data, trading in corporate bonds, including over-the-counter trades and trading through exchanges, were worth Rs 53,664.26 crore (Rs 536.64 billion) between January and August this year. Between September 1 and 20, the trading stood at Rs 532.66 crore (Rs 5.32 billion).
The report of the high-level committee on corporate bonds and securitisation chaired by R H Patil, the former chief of the NSE, had noted: "Repos in corporate bonds will give an opportunity to investors, who have illiquid corporate bonds, to recycle the same and borrow money against these securities."