Former Sebi Chairman Ajay Tyagi has proposed the unification of the bond marketplace for “economies of scale and scope” available in the market.
The authorities securities (G-Secs) market and company bond market are presently separated and observe totally different regulatory regimes. “Unifying these two markets would enable seamless transmission of pricing information from G-Secs to corporate bonds. It would lead to removal of artificial segmentation of investors,” he stated Friday, whereas addressing the 4th International Conference on Financial Markets & Corporate Finance at IIT Mumbai.
The unification of the regulatory construction for buying and selling, clearing and settlement of company bonds and G-Secs will end in “economies of scale and scope” resulting in better competitors, innovation and effectivity within the markets. “This will also lead to increased liquidity in corporate bonds as well as G-Secs, and in fact help the government in raising its debt,” Tyagi added.
“The most important step which needs to be taken and which I have been advocating for quite some time is the unification of the bond market… unifying the regulatory regime for government securities and corporate bonds, both for issuance and trading,” the previous Securities and Exchange Board of India (Sebi) Chairman stated.
“The government borrowings to meet its fiscal deficit dominate the domestic debt market in India. As a result, within the overall bond market — both primary and secondary markets — G-Secs have an overwhelming presence. Some have even argued that the ever-increasing size of government borrowings is effectively crowding out the corporate borrowings. The pricing of corporate bonds is intrinsically dependent on the presence of a continuous yield curve in G-Secs,” he famous.
“There is a need to harmonise the rules of ownership, governance, risk management, and compliance of market infrastructure institutions as well as the mechanism of trading, clearing and settlement across the platforms and product class for all types of securities in the financial market,” he stated.
The authorities’s determination to arrange a Development Financial Institution (DFI) for debt financing of infrastructure is a welcome step, Tyagi stated, including this establishment ought to be made operational shortly.
