The Securities and Exchange Board of India (Sebi) has requested the Reserve Bank of India (RBI) to provide certain approvals to AMC Repo Clearing (ARCL) to facilitate participation from banks and primary dealers (PDs), said Sebi’s executive director Pramod Rao.
ARCL was launched last year in July by Finance Minister Nirmala Sitharaman to boost liquidity in the corporate bond repo market.
The Sebi official said that the volume in the corporate bond repo market has surpassed Rs 1 trillion in a year’s time. The monthly transactions on the platform are now in the range of Rs 10,000 crore to Rs 15,000 crore, he added.
Market players said that ARCL is not classified as a Qualified Central Counterparty (QCCP), which restricts participation from banks and PDs.
“We are in dialogue with RBI to allow primary dealers and banks to participate in this (ARCL) as well, as it will deepen the market. The current trade volume on ARCL has reached such levels without bank or PD participation; this should only tell you there is depth even without them,” said Rao, speaking at the Global Fintech Fest.
Rao further asserted the steps taken by the market regulator to deepen the corporate bond and debt market, including its focus on online bond platforms, easier offer documents, backstop facilities for the debt market, municipal bonds, and real estate investment trusts (REITs).
He also disclosed that three fractional ownership platforms are in the process of registering under the newly formulated framework of Small & Medium REITs (SM REITs). More are expected to apply before the deadline of September 8.
“Because ARCL is not a QCCP, banks need to allocate higher capital against their outstanding positions on ARCL under Basel norms. While banks and PDs are there in the segment, given the constraints, they cannot participate,” said a market participant.
Another participant said that to enable their participation, funds borrowed in tri-party in corporate bonds would need to be exempt from Cash Reserve Ratio (CRR) calculations, similar to the exemptions available for funds borrowed in the tri-party repo in government securities for banks and PDs.
ARCL offers clearing and settlement services to all trades executed on NSE and BSE under tri-party repo in corporate debt securities.
The capital for ARCL has been contributed by asset management companies (AMCs) based on their assets under management (AUM) of open-ended debt-oriented schemes.
The platform’s services extend beyond AMCs to include insurance companies, market makers, and short-term traders to take positions and manage their risks in listed corporate bonds and debentures (non-convertible debt securities), commercial papers (CPs), and certificates of deposit (CDs).
First Published: Aug 28 2024 | 7:15 PM IST
