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.
- 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