Watchdog Sebi lets FPIs invest in unlisted corporate bonds

In a bid to deepen capital markets, Sebi on Monday notified new norms allowing Foreign Portfolio Investors (FPIs) to invest in unlisted corporate debt securities and securitised debt instruments. The decision follows the board of Securities and Exchange Board of India (Sebi) approving a proposal last November in this regard.

In a notification, the regulator said it has amended FPI regulations to allow overseas investors to invest in unlisted non-convertible debentures and securities debt instruments. The Reserve Bank too relaxed its rules recently for allowing such investments by FPIs.

Earlier, investment in unlisted debt securities was permitted only in the case of companies in the infrastructure sector. Further, investment by FPIs in securitised debt instruments was not permitted. The Sebi move is aimed at enhancing investor base in unlisted debt securities and securitised debt instruments.

Securitised debt instruments include certificate or instrument issued by a special purpose vehicle (SPV) set up for securitisation of asset with banks and other financial institutions. The permitted avenues also include certificate or instrument issued and listed in compliance of Sebi norms.

FPIs have been permitted to invest in the unlisted corporate debt securities in the form of non-convertible debentures (NCDs) or bonds issued by an Indian public or private company. Last month, Sebi had notified rules permitting well-regulated FPIs to directly trade in corporate bonds, without going through any broker or other intermediary.

Sebi is also looking at imposing a bigger penalty for misuse of high-speed algo trades as also "following up" on full implementation of directions it issued in the case involving NSE, outgoing chairman U K Sinha said on Monday. While emphasising that India is one of the very few countries which has some mechanism for preventing misuse of algo trading, Sinha said the regulator is reviewing whether the penalty for misuse should be increased.

"Sebi has provided certain minimal regulations on algo such as we have provided penalty system on high orders trade. We are reviewing if penalty should be enhanced further.

"We also have taken into consideration that what happened outside India is not repeated by putting abstract number on how many orders can be placed," he said in his last press meet as Sebi Chairman.

His comments come amid concerns arising out of a probe into alleged lapses involving the co-location facility of NSE, the country's biggest stock exchange. According to Sinha, the difficulty is that it is a highly technical issue and also that people who comment on the subject have conflict of interest.

"They are either technical providers of algo or its users. And I don't blame them (as) they have put money in it," he said, assuring that Sebi would not like to do anything disruptive. Stating that another comment is that why is Sebi trying to imitate other countries and not go by its own data, Sinha said, a highly evolved expert technical team is looking at the trading data to look at possible way of sorting out the issues.

"Once analysis is complete we will be able to take it forward," he said. Sinha also said that many jurisdictions have been debating about algo trades for years and some of them have come out with consultation papers.