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The Securities and Exchange Board of India (Sebi) on Wednesday stated mutual funds will undertake no less than 10% of their secondary markets commerce in company bonds by means of the Request for Quote (RFQ) platform of inventory exchanges from 1 October.
This is geared toward boosting the liquidity on the exchanges for secondary market bond transactions. The regulator additionally mandated mutual funds to disclose their portfolio every 15 days. As per present norms, funds disclose their month-end portfolios with only some funds issuing half-monthly portfolios.
Additionally, the markets regulator additionally mandated disclosure of yields of the underlying instrument.
Currently, mutual fund schemes usually disclose the yield of your complete portfolio and never of particular person securities.
The disclosure of yields of particular person bonds will enhance transparency for buyers who’re caught in schemes which have taken riskier bets of investing in lower-rated papers.
The secondary trades to be executed on the RFQ platform won’t embrace inter-scheme transfers. These secondary transactions over RFQ platform would guarantee negotiated offers throughout securities over an digital platform.
Sebi stated the transfer will improve transparency and disclosure pertaining to debt schemes and investments by mutual funds in company bonds and business papers. This is predicated on suggestions of Mutual Fund Advisory Committee (MFAC).
At the capital markets summit organized by an trade physique on Wednesday, Sebi chairman Ajay Tyagi stated that this transfer may also enhance worth discovery within the bond market.
“Trading in company bonds is essentially OTC (over-the-counter), which is then reported to the exchanges. To replicate this OTC nature however with higher worth discovery and transparency by means of digital mode, Sebi has not too long ago launched RFQ platforms. We have determined to mandate mutual funds to use this platform in a phased method. Use of this platform by different institutional buyers as properly will end in higher transparency and worth discovery within the bond market,” he stated.
According to Tyagi, mutual funds have been the worst hit by the liquidity points led to by covid-19.
Sebi, in its round on Wednesday, additionally stated that each one transactions in company bonds and business papers whereby a mutual fund is on either side of the commerce can be executed by means of the RFQ platform of inventory exchanges in one-to-one mode, and any transaction entered into by a mutual fund in company bonds in one-to-many mode and will get executed with one other mutual fund shall even be counted for the 10% requirement.
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