The Bombay Stock Exchange will introduce a secured settlement platform for the Rs 1,500 crore (Rs 15 billion) Indian Corporate Debt Market next week.
The new initiative is aimed at mitigating the market risk of a buyer not receiving bonds after having remitted the funds or a seller not getting the payment for bonds.
The BSE would also launch soon a Corporate Bond Repo, another new product for the Indian market.
"We hope to operationalise the ICDM platform on the exchange by next week," Sayee Srinivasan, BSE product strategy head, told PTI.
"We are now in the process of signing up banks and other players in the system and testing our connectivity with their back offices, depositories, and RBI's RTGS system," he said.
The exchange is participating in education seminars and roadshows across cities to inform market participants about the new settlement platform.
Srinivasan said the BSE was awaiting guidelines for the Corporate bond repo. "After RBI provides the guideline, we will launch CBR in four weeks," he said.
Srinivasan said currently most of the debt corporate bond trading in India took place between banks, mutual funds, insurance companies and pension funds on the over-the-counter market.
Trades were executed by phone between these institutions and settled by their respective back offices, and only details of transaction (time, details of bonds traded, price etc) were reported to any one of the BSE, NSE or FIMMDA platforms.
Srinivasan said the new system, however, would not be able to mitigate the counterparty risk completely.
There is likelihood that the trade could get canceled due to default of counterparties.
A lack of supply of identical underlying securities in the bond market unlike equities would be a stumbling block for exchanges to guarantee any trade.
"There can be high penalty on the defaulting party to reduce default risk. However, initially, there is no plan for such penalty by the exchange," Srinivasan said.
