(Bloomberg) – India’s capital market regulator is proposing to create a set of market makers to deepen and further strengthen the country’s corporate bond market.
These entities will help bring liquidity to the secondary corporate bond market, where trading is limited to a small number of well-rated notes or limited to trading from financial institutions, banks and mutual funds, said the Securities and Exchange Board of India during a consultation. Tuesday paper.
The role of market makers in the corporate bond market will be similar to that of primary traders in the Indian sovereign bond market. They will provide both buy and sell quotes in the market, help absorb the temporary mismatch of supply and demand, and reduce the impact of shocks on market volatility.
“This decision by the regulator will increase investor participation in the corporate bond market, as these market makers will provide quotes in both directions, thus making it easier for buyers to enter and exit, thereby reducing the current illiquidity on the market. secondary market, ”said Ajay Manglunia, Managing Director and Head of Institutional Fixed Income at JM Financial Ltd. “It will also reduce the cost of financing businesses because the more buyers there are, the better the price discovery. “
Indian authorities have long tried to expand the country’s corporate bond market in order to better spread credit risk and wean companies’ reliance on bank loans. Lack of liquidity in the secondary market forced Franklin Templeton last year to shut down some of its Indian debt funds due to heavy exposure to lower-rated bonds, exposing the need to improve the bond market. companies in the country.
READ: Why Franklin’s Indian debt funds faced a liquidity crunch (1)
The regulator has sought comments from market players and stakeholders on the proposed introduction of market makers by December 16.
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