SEBI’s Fresh Guidelines for Online Bond Platform Providers’ Product Offerings

Recently, the Securities and Exchange Board of India (SEBI) implemented new restrictions on online bond platform providers (OBPPs), limiting the products they can offer to only listed debt securities. However, the regulator did permit OBPPs to include certain securities such as Government Securities, Treasury Bills, listed Sovereign Gold Bonds, listed municipal debt securities, and listed securitized debt instruments on their platforms. This update came in the form of a circular.

As per the regulations, OBPPs are required to register themselves as stock brokers in the debt segment of the stock exchange.

OBPPs serve as a channel for investors, particularly non-institutional investors, to access the bond market.

Sebi, while imposing restrictions on the products offered by online bond platform providers, has emphasized that any entity serving as an online bond platform provider must refrain from offering products or services that are not permitted under the regulations, both on their own platform and on any other platform or website.

Furthermore, Sebi stated that the holding company, subsidiary, or associate of an online bond platform provider is prohibited from using the name, brand name, or any similar name of the online bond platform provider for offering products and services that are not regulated by a financial sector regulator.

These measures were implemented by Sebi after noticing that certain online bond platform providers have been operating by offering products other than listed debt securities and debt securities intended for public offerings on their platforms. Some providers have also created separate platforms or websites for trading unlisted bonds without discontinuing such offerings. Additionally, Sebi observed that certain online bond platform providers have included links on their platforms to facilitate transactions in unlisted bonds and other products.

The aforementioned practices mentioned above are in violation of the NCS (Issue and Listing of Non-Convertible Securities) Regulations.

The new framework introduced by the Securities and Exchange Board of India (Sebi) will be implemented immediately, according to their announcement.

In February, Sebi extended the application timeline by three weeks, starting from February 9, for entities operating as online bond platform providers to register as stock brokers.

In recent years, there has been a notable rise in the number of online bond platform providers offering debt securities to non-institutional investors. Many of these providers are fintech companies or have the support of stock brokers. Consequently, there has been a significant increase in the number of registered users engaging in transactions through these platforms.

While online bond platform providers have facilitated access to the bond market for investors, their operations were previously outside the regulatory oversight of Sebi. To address this, Sebi notified the framework for entities operating or seeking to operate as online bond platform providers in November 2022.