Sebi mulls framework for market making to deepen bond markets

Mumbai: With over 98 per cent of corporate bonds being private placements, leading to a shallow secondary market, Sebi is planning to come out with a framework for market-making to help markets become more vibrant and funds cheaper, a Sebi member said.

Concerted efforts by regulators and government have seen corporate bond outstanding touching Rs 40.20 lakh crore in FY22 from Rs 10.51 lakh crore in FY12, while the secondary market is about 30 per cent of this. Annual issuances during this period have increased from Rs 3.80 lakh crore to close to Rs 6 lakh crore. Compared to this, the current outstanding stock of government securities is Rs 84.71 lakh crore across 100 instruments as of June 2022 while trading volume in G-Secs was Rs 126.6 lakh crore in FY22 which is about seven-times of the trading in corporate bonds.

Between FY12 and FY22, the secondary market volume spiked from Rs 4.5 lakh crore to Rs 14.37 lakh crore, showing clearly that secondary trading has not risen in consonance with the size of the market, according to the RBI. The central bank data also show that as much as 80 per cent of issuances in FY22 were AAA-rated, and 15 per cent were AA-rates, leaving just 5 per cent for high-yielding junk papers, which is one of the reasons for low trading volume or lack of liquidity in the secondary market. Market making not only assists in creating a more vibrant corporate bond market but also helps in generating better yields and in reducing cost of borrowing for borrowers over the long-run.