Online Bond Platforms Now Need To Register As Stock Brokers: SEBI

Online bond platform providers offering debt securities to non-institutional investors now need to register as stock brokers in stock exchanges.

Bringing online bond platforms under its regulations, the Securities and Exchange Board of India (SEBI), in a circular issued on Monday, said such entities already offering such services "shall cease to offer products or services or securities on their online platforms".

Transactions in listed debt securities and debt securities proposed to be listed through a public offering are exempted from this regulation.

These online platforms are fintech companies backed by stock brokers or SEBI-registered intermediaries.

There has been a significant increase in registered users transacting through such online platforms.
SEBI noted that while these online platforms provide an avenue for investors, particularly non-institutional investors, to access the bond market, their operations were outside the regulatory purview.

With the bond market offering scope for development, particularly in the non-institutional space, SEBI said there is a need to place checks and balances for transparency in operations and disclosures.

Measures for mitigating payment and settlement risk, availability of redress mechanisms, etc., are other factors that warrant regulations.

The capital market regulator also directed stock exchanges to monitor the operations carried out by online bond platform providers.

Stock exchanges must make necessary amendments to the relevant rules and regulations to implement the SEBI circular.

After obtaining registration as a stock broker in the debt segment of stock exchanges, online bond platform providers will have to undertake that they own, operate and maintain the technology infrastructure.

Online bond platform providers also need to comply with Know Your Client (KYC) requirements and verify the identity of investors and sellers.

The compliance norms also require them to have proper systems in place to disseminate information about transactions on a real-time or near real-time basis.

They also will have to confirm the technological capability to safeguard and maintain data privacy.
Online bond platform providers must ensure data governance information is available on a "fair and non-discriminatory" basis.

"The entity shall ensure open access and architecture to all potential investors/sellers on a non-discriminatory and uniform basis," SEBI said.

While third-party sellers of debt securities use the online platform to sell securities, online bond platform providers shall enter into an agreement in writing that defines liabilities and obligations, among other things.