Unified Bond Market

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.
  • 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

Leave a Reply