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SEBI Seeks to Enhance Transparency in Debt Mutual Funds: 5 points

23-Jul-2020

Sebi has announced a certain measures related to debt mutual funds to enhance the liquidity and transparency in their trades. The market regulator on Wednesday asked mutual funds to undertake at least 10% of their total secondary market trades by value in the Corporate Bonds by placing/seeking quotes through Request for Quote (RFQ) platform of stock exchanges. ‘Request for Quote’ (RFQ), as explained by NSE, is a platform for interaction amongst the market participants who wish to negotiate transactions amongst themselves. This platform is a participant to participant model where an initiator may request other participants for a quote in securities like - corporate bonds, securitized debt instruments, Government securities, or any other security as specified by Exchange from time to time. The RFQ platform keeps an audit trail of all the interactions i.e. quoted yield, mutually agreed price, deal terms etc. This may bring pre trade transparency for over the counter transactions in eligible securities. Here are the changes brought by Sebi: 1)On monthly basis, mutual funds should take at least 10% of their total secondary market trades by value (excluding Inter Scheme Transfer trades) in the Corporate Bonds by placing/seeking quotes through one-to-many mode on the Request for Quote (RFQ) platform of stock exchanges. "The percentage as specified shall be reckoned on the average of secondary trades by value in immediate preceding three months on rolling basis," says Sebi in the circular. 2)All transactions in corporate bonds and commercialpapers wherein mutual fund is on both sides of the trade shall be executed through RFQ platform of stock exchanges in one-to-one mode. 3)Any transaction entered by mutual fund in Corporate Bonds in one to many mode and gets executed with another mutual fund shall also be counted for the aforesaid 10% requirement.. 4)Debt mutual fund schemes should make such disclosure on fortnightly basis within 5 days of every fortnight. In addition to the current portfolio disclosure, yield of the instrument shall also be disclosed. The disclosure shall be made in the format mentioned in the aforementioned circular. 5)The will come into force with effect from October 1.

Source : Live Mint

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