Context: Recently, the chairman of Securities and Exchange Board of India (SEBI) has called for unification of the financial markets.

Need of a Unified Bond Market

• The two separate bond markets results in artificial segmentation of investors and divergent governance.
• The regulatory norms for functioning of institutions in both markets is similar and there is no point of have two separate ecosystems of bond markets.
• A rise in participation of retail investors has led to rise in new demat accounts indicated the entry of first-time retail investors.
• The corporate bond repo market had not taken off as expected.
• The plateauing of corporate bond issuances and declining bank credit disbursements by banks are inextricably linked to the decline in corporate private investments.

Significance of Unified Bond Market

• It will ensure trading, clearing and settlement takes place on one platform.
• It will be backed up by an eco-system that provides for seamless transfer of government and private bonds.
• It will also help in better price discovery.
• It will aim to ensure robust, continuous g-sec yield curve.
• The negotiations that currently take place offline and bilaterally would have to be done on an electronic platform, with straight-through processing of clearing and settlement to complete the trade.

Way Forward

• The market infrastructure institutions dealing with two types of securities i.e. corporate bond and government securities should follow the same rules and regulations.
• It would be ideal for first-time investors to begin their capital markets journey by investing in risk-free government bonds and G-secs should be issued in demat form.
• The development and deepening of the corporate bond market ought to be one of the topmost agendas of the policymakers by considering the problems with the banking sector.

Source: The Hindu