SEBI Issues Notification to Amend Stock Brokers Regulations: To Boost Liquidity in Secondary Market for Corporate Bonds

SEBI Issues Notification to Amend Stock Brokers Regulations: To Boost Liquidity in Secondary Market for Corporate Bonds

The Securities and Exchange Board of India (SEBI) has issued a notification, introducing amendments to the Securities and Exchange Board of India (Stock Brokers) Regulations, 1992.

The Capital Market Regulator proposed to amend the stock broker’s rule concerning registration of entities for participation in the tri-party repo segment for corporate bonds, a move that will boost liquidity in the segment.

The move came after the board of SEBI in June, 2023 approved the proposal to additionally facilitate participation by entities desiring direct participation (not through a clearing member) in repo transactions in corporate bonds of the Limited Purpose Clearing Corporation (LPCC).

LPCC is an entity established to undertake the activity of clearing and settlement of repurchase agreement transactions. In September 2020, SEBI’s board approved a proposal to facilitate the setting up of an LPCC.

The amended regulations will be known as the ‘Securities and Exchange Board of India (Stock Brokers) (Second Amendment) Regulations, 2023’ and will come into effect from the date of their publication in the Official Gazette.

The notable changes to the existing regulations are as follows:

1. In the first proviso, after the words “the concerned clearing corporation,” the symbol ‘.’ shall be substituted with the symbol ‘:’.

2. A new provision has been inserted, which states: “Provided further that no separate registration shall be required for any person registered with the limited purpose clearing corporation as a participant for participating in the tri-party repo segment for undertaking proprietary trades in corporate.”

3. The existing Explanation has been renumbered as Explanation 1.

4. A new Explanation, known as Explanation 2, has been added, which clarifies the definition of ‘participant’ for the purposes of these regulations. According to Explanation 2, ‘participant’ means any person who is an eligible entity as stipulated under the Repurchase Transactions (Repo) (Reserve Bank) Directions, 2018.

It is expected to facilitate active trading, especially by market makers, by enabling them to finance their inventory of bond holdings through an active repo market leading it to improve liquidity in the corporate bond markets.

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