Sebi lets FPIs trade directly in corporate bonds sans brokers

Currently, FPIs can trade in Indian markets only through brokers who are registered with the stock exchanges as their members. Under the new proposal approved by Sebi’s board here, the Securities and Exchange Board of India (Sebi) would take up the matter with the government to permit FPIs to become members of the stock exchanges for their proprietary trading.

In a statement, Sebi said it has decided to allow Category I and Category II FPIs to have an option to directly access the corporate bond market without brokers, as has been allowed to domestic institutions such as banks, insurance companies and pension funds.

“Access to Over the Counter (OTC), Request for Quote and Electronic Book Provider (EBP) platforms of the recognised stock exchanges will be provided to FPIs only for proprietary of FPIs will help in deepening the corporate bond market,” Sebi said.

Sources have said that the FPIs can also be given direct access to other segments of the capital markets at a later stage, depending on the response in the corporate bonds market. The revised norms would be applicable for Category-I FPIs that include sovereign wealth funds and central banks as well as Category-II FPIs, which include mutual funds and banks. However, hedge funds, individuals and other high risk foreign investors will not get this facility. The move is aimed at boosting foreign inflows in Indian capital markets. However, there has been concern from some quarters that it would have negative impact on domestic brokerage houses as they will lose out on revenue.

Currently, investments made by Sebi-registered FPIs in domestic capital market stands at Rs 11.5 lakh crore. This include Rs 8.45 lakh crore in equities and Rs 3.06 lakh crore in debt. Moreover, Sebi decided to further relax in norms for REITs and InvITs in a bid to make these instruments more attractive for raising capital.

Several attempts are being made to garner due attention from business houses in the country but all the efforts failed leading to Sebi reconsidering the proposal to give further relaxations.

In order to facilitate growth of REITs (Real Estate Investment Trusts) and InvITs (Infrastructure Investment Trusts), the Sebi board in its meeting here today decided to ease norms further in this regard. The decision was taken after extensive public consultation.

Sebi had notified the REIT and InvIT Regulations in 2014, allowing setting up and listing of such Trusts, which are very popular in some advanced markets. However, no single Trust has been set up as yet as investors wanted further measures, including tax breaks, to make these instruments more attractive.