Clearing house mechanism for bond trade soon: SEBI chief

15 May 2009

The Reserve Bank will soon put in place a clearing house mechanism for settlement of trading in corporate and other bonds, a move that will infuse transparency and encourage development of a bond market, SEBI chairman C B Bhave said today, adding that the facility is likely to be introduced in the next couple of months.

"RBI has agreed to a facility by which the money will lie with the central bank and not with banks and this system will be in place in the next couple of months," SEBI chief told reporters here.

Currently, market traders usually settle the trade in bonds bilaterally as the number of participants is small.

SEBI chief said there had been a issue of confidence among the institutions for going ahead with settlement only through a few banks as the amount involved was huge.

The new system will do away with bilateral settlement of trades and infuse transparency in the bond market. The money will also lie with the RBI during pay-in and pay-out.

Bhave does not expect the new system to increase the number of participants in the market as it is limited to institutions. However, FIIs participation up to $15 billion and the corpus from the new pension scheme will help boost bond market volumes, Bhave said.