Sebi proposes uniform pricing for non-convertible debt securities

The requirement of such a framework also assumes significance as large number of such investors belong to categories such as mutual funds, insurance companies and pension funds, which have a mandate of daily net asset value (NAV) with an exit facility at any point of time for their investors.

This requires a reliable and accurate price of the outstanding securities on a daily basis.

As per Sebi, the current practice of pricing of corporate bonds varies for different classes of regulated entities and this impacts trading in the secondary market.

Accordingly, it has been recommended that a uniform pricing methodology be evolved, which provides prices on a daily basis and may be followed by all the regulated entities for valuing their corporate bond portfolio.

"Availability of such a uniform pricing framework, will ultimately lead to improvement in liquidity in the secondary market and thus will help in deepening the bond markets," the Securities and Exchange Board of India (Sebi) said in a 15-page consultation paper issued on Wednesday.

The regulator has sought public comments on the proposal till June 18 and final regulation will be put in place after taking into consideration views of all the stakeholders.

The proposal has been drafted after consulting with representatives of various market participants and industry bodies such as Association of Mutual Funds in India (Amfi) and Fixed Income Money Markets and Derivatives Association(FIMMDA).

Besides, a stock of the current set of pricing methodologies was taken and as identified in HR Khan committee report, there are primarily two different methodologies, one administered by FIMMDA and the other by credit rating agencies.

Under the proposal, Sebi has focussed on issues like pricing agency, details of the methodology for undertaking pricing activity for bonds, approach of construction of spread matrix, governance framework and dissemination of the pricing related information.

Sebi said a single reference price would not be achieved by prescribing a principle or methodology, however it will generate daily closing prices which would be derived by following a consistent methodology for all the bonds in the market and would thus be more suitable and timely.