On August 7, 2023, the Securities and Exchange Board of India (SEBI) mandated Foreign Portfolio Investors (FPIs) to place at least 10% of their trades in corporate bonds through the Request For Quote (RFQ) platform of stock exchanges w.e.f. from October 1, 2023.
- This information by SEBI is provided in exercise of its power conferred under Section 11(1) of the SEBI Act 1992, read with the provisions of Regulation 20(5) and Regulation 44 of SEBI (Foreign Portfolio Investors) Regulations, 2019 to protect the interests of investors in securities and to promote the development of, and to regulate the securities markets.
Aim:
i.To boost liquidity on the RFQ platform
ii.To enhance the transparency and disclosures pertaining to investments in corporate bonds to encourage investment by FPIs in the corporate bond segment
Reason behind this Mandate:
This mandate followed a consultation paper by SEBI in July 2023. According to the paper, FPIs’ corporate bond investment is generally low, and their trades on the RFQ platform are even lower. In FY2022-23, FPIs conducted only 4.5% of their total corporate bond trades through the RFQ platform, and their share of total trades executed by various entities on the RFQ platform was merely 0.78%. So, to overcome this, the above mandate is made.
What is RFQ?
Request For Quote (RFQ) , launched on BSE (earlier Bombay Stock Exchange) and NSE (National Stock Exchange of India) in February 2020, is an electronic platform that facilitates multi-lateral negotiations for debt securities on a centralized online trading platform. It enables straight-through processing of clearing and settlement, and offers a diverse range of debt securities for trading.
- It operates as a participant-based model, allowing registered regulated entities, listed corporate bodies, institutional investors, and Indian financial institutions to access and transact quotes.
Click Here for Official Circular
SEBI Reduces Overseas Investment Timeline for AIFs and VCFs to 4 Months
SEBI has decreased the validity period of approval for Alternative Investment Funds (AIFs) and Venture Capital Funds (VCFs) to make overseas investments to four months from six months.
- If these funds do not utilize their investment limits within this timeframe, SEBI has the authority to allocate the unutilized limits to other applicant AIFs and VCs.
- This information by SEBI is provided in exercise of its power conferred under Section 11(1) of the SEBI Act 1992.
Key Points:
i.The decision has been taken following the recommendation of the Alternative Investments Policy Advisory Committee.
ii.This decision will apply to the overseas investment approvals granted by SEBI.
iii.In August 2022, SEBI issued guidelines permitting Alternative Investment Funds (AIFs) and Venture Capital Funds (VCFs) to invest in foreign companies without requiring any connection to India. Prior to this, their investments were limited to companies that had at least one office in India.
- AIFs/VCFs can invest in an overseas investee company, which is incorporated in a country whose securities market regulator is a signatory to the International Organization of Securities Commission’s Multilateral Memorandum of Understanding (Appendix A Signatories) or a signatory to the bilateral Memorandum of Understanding with SEBI.
- This step opens up investment opportunities for AIFs and VCFs in overseas companies within a regulated framework.
Click Here for Official Circular
Recent Related News:
i.SEBI has introduced ASBA (Application supported by Blocked Amount)-like process for trading supported by Blocked Amount in the secondary market w.e.f. January 1, 2024. This move is aimed to safeguard investors’ cash collateral.
ii.SEBI has made the manager and key management personnel of the AIF responsible for appointing an ‘independent valuer’ of assets and ascertaining true and fair valuation of the investments of AIF schemes.
About Securities Exchange Board of India(SEBI):
Chairperson -Madhabi Puri Buch
Headquarters -Mumbai, Maharashtra
Establishment – 12 April 1992
