The Securities and Exchange Board of India, often known as SEBI, is the primary regulatory body for the securities market in India, including the bond market. SEBI works for the benefit of investors and issuers and manages the functions in the bond, stock and securities markets.

The main objective of SEBI is to protect the interests of investors. It frames the rules and regulations to ensure a fair, transparent, and safe environment for bond investors.

SEBI ensures that the mandatory functions are being regulated by the bond issuers for transparent information in prospectuses through regular cash flow disclosures on the centralized corporate bond database for both new and existing debt securities.

Regulation of Issuers and Intermediaries

Public Issue Requirements:

Companies making a public issue of debt securities need to satisfy certain conditions, such as obtaining an in-principle approval for listing on a recognized stock exchange. They are also required to provide a merchant banker and a debenture trustee.

Credit Rating:

Issuers need to gain a credit rating from at least a single SEBI-registered credit rating agency and disclose it in the offer document. This helps investors assess the credit risk associated with the bond.

·Dematerialization:

Bonds need to be issued in dematerialized form. This is a crucial step for investor protection as it eliminates the risks associated with it.

Investor Protection Measures

Disclosure Requirements:

SEBI makes it compulsory that companies provide comprehensive and timely disclosures to investors. The offer document must contain detailed information about the company’s financial performance, the terms of the bond issue, and any risks involved.

Disclosure Requirements:

Issuers are required to appoint a debenture trustee to protect the interests of investors. The debenture trustee acts as a guardian of the bondholders’ interests and ensures that the issuer fulfills its obligations as per the terms of the issue.

· Investor Grievance Redressal:

SEBI provides a dedicated system for addressing investor grievances. Investors can file complaints against a listed company or a SEBI-registered intermediary through the SEBI Complaints Redressal System (SCORES).

3. Recent Reforms and Development of the Bond Market

· Online Bond Platform Providers (OBPPs):

With the advanced introduction of a framework by SEBI for Online Bond Platform Providers, it has been an easy facility for online bond transactions for retail investors. This has significantly increased the accessibility of the bond market for individual investors.

· Reduced Minimum Investment:

SEBI has reduced the minimum investment amount for privately placed bonds to encourage retail participation. With this, the entry barrier has been lowered for individual investors. This allows them to diversify their portfolios with bonds.

· Exchange-based Execution:

All orders for bonds on OBPPs must be placed and settled through recognized stock exchanges to enhance transparency and investor protection. This removes the counterparty risk for investors.

SEBI initiated many Attraction Plans for Retail Investors to Bonds:

Launch of “Retail Direct Scheme” – 2020

SEBI Enabled individual investors to directly invest in government bonds through an easy-to-use online platform.

Boosting Transparency in Bonds – 2021

Strict disclosure norms ensured investors had access to crucial bond details like pricing, interest rates, and risk ratings.

Streamlining Bonds Trading Platforms – 2022

SEBI also worked on streamlining bond trading platforms, making it easier for retail investors to trade bonds on recognized stock exchanges.

Better Pricing & Information Rules – 2023

New regulations mandated issuers to disclose bond pricing, yields and maturity terms, empowering investors with clear data.

Bond Market Development over the year

2020 – Launch of “Retail Direct Scheme”: SEBI provided a significant improvement by launching the “Retail Direct Scheme,” which allowed individual investors to directly invest in government securities by using an online platform. This initiative focuses on simplifying bond investments and providing easy access to government bonds.

2021 – Boosting Transparency in Bonds: SEBI implemented new measures to improve transparency in the bond market. It introduced stricter disclosure norms for issuers that ensure all bond-related information is made available to the public.

2022 – Streamlining Bonds Trading Platforms: SEBI made it easier for retail investors to trade bonds on recognized stock exchanges. Through this change, the bonds are made more accessible to the retail investor by removing intermediaries and reducing complexities for the selling and buying of bonds.

2023 – Better Pricing & Information Rules: SEBI has introduced regulatory guidelines around pricing and trading of bonds in 2023. Through this introduction, the issuers are bound to disclose the detailed information about the bond issues, like the price at which the bonds were issued, the yields, and the maturity terms.

2024 – Some Major changes that enhanced retail participation in the bond market: The minimum ticket size for private corporate bonds was reduced from ₹1 lakh to ₹10,000. This lowered the entry barriers for retail investors. Improved transparency was adopted for OBBPs (Online Bond Platform Providers). A proposed liquidity window facility focused on providing investors with an exit option before maturity.

2025 – Public Consultation, Approval Process and Review of Regulations: A minimum of 21 calendar days is typically provided for the public consultation period. After receiving public comments, the proposed regulations and a summary of the comments received will be presented to the SEBI Board for consideration and approval. A periodic review of existing regulations is provided to consider the regulations’ objectives and promote ease of doing business .

Important Note:

While SEBI regulations provide a robust framework for protecting investors’ money, investors need to conduct their own research before investing in bonds. Thus, these processes include:

• Understand the Risks: Investors should be aware of the credit risk, interest rate risk, and liquidity risk.
• · Checking Credit Rating: A high credit rating simply indicates a lower risk of default.
• Reading the Offer Document: Reading the crucial information about the bond and the issuer provides you, as an investor, with the confidence to take a relaxed breath for investing in the amount.

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