To increase liquidity in the secondary market for corporate bonds, Sebi amends the rule

The tri-party repo sector for corporate bonds now has more liquidity thanks to a change made by capital markets regulator Sebi to the regulation governing stock brokers’ registration of participants.

“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 bonds,” the Securities and Exchange Board of India (Sebi) stated in a notification released on Monday.

The decision followed the board of Sebi’s approval of a proposal last month to make it easier for companies that want to participate directly in repo transactions involving corporate bonds of the Limited Purpose Clearing Corporation (LPCC), rather than via a clearing member.

The LPCC is a company created specifically to handle the clearing and settlement of repurchase agreement transactions.

By allowing market makers to finance their inventory of bond holdings via an active repo market, it is anticipated to enhance active trading, particularly by market makers. In consequence, it is anticipated that this would increase market liquidity for corporate bonds.

The board of Sebi accepted a proposal to expedite the formation of an LPCC in September 2020.

The regulator also changed the Securities Contracts regulations.

The Fund would be used to complete the settlement under the new regulation in the event that a clearing member or participant did not fulfill his settlement duties.

Additionally, the Fund’s capital must be sufficient to pay the settlement liabilities resulting from a clearing member or participant’s failure.

To ensure the settlement of deals completed in certain portions of a recognized stock exchange, every recognized clearing firm must create and manage a Fund.