Sebi allows FPIs to directly trade in corporate bonds

The Securities and Exchange Board of India (Sebi) has done away with the requirement of foreign portfolio investors (FPIs) having to go to a stock broker to invest in corporate bonds, and allowed the foreign investors to buy corporate bonds directly. 

Category I and Category II FPIs will have an option to directly access corporate bond market without brokers as has been allowed to domestic institutions such as banks, insurance companies, pension funds etc.

''Access to over-the-counter (OTC), request for quote (RFQ) and electronic book provider (EBP) platforms of RSE will be provided to FPIs only for proprietary trading and participation of FPIs will help in deepening the corporate bond market,'' Sebi stated in a release.

As per the Sebi (Foreign Portfolio Investor) Regulations, 2014, notified on 7 January 2014, ''The transaction of business in securities by a foreign portfolio investor shall be only through stock brokers registered by the Board.'' Further, the broker is required to be a qualified member of a Recognized Stock Exchange (RSE) in accordance with Rule 8 of the Securities Contracts (Regulation) Rules, 1957.

Accordingly, the government is expected to take up the proposal for amendment of Rule 8 (4) of Securities Contracts (Regulation) Rules, 1957 to permit FPIs to become a member of a RSE for the limited purpose of proprietary trading. Necessary amendments to the Sebi (Foreign Portfolio Investor) Regulations, 2014 will also be made in this regard.

The Sebi board at its meeting today also proposed amendments to the Sebi (Infrastructure Investment Trusts) Regulations, 2014 and Sebi (Real Estate Investment Trusts) Regulations 2014

Sources have said that the FPIs can also be given direct access to other segments of the capital markets at a later stage, depending on the response in the corporate bonds market.

The revised norms would be applicable for Category-I FPIs that include sovereign wealth funds and central banks as well as Category-II FPIs, which include mutual funds and banks.

However, hedge funds, individuals and other high risk foreign investors will not get this facility.

The move is aimed at boosting foreign inflows in Indian capital markets.