In a bid to make debt funds more transparent, SEBI has asked fund houses to disclose the portfolio of their debt schemes on a fortnightly basis within 5 days of every fortnight. The market regulator has asked MFs to follow the new disclosure norm from October 1.
Further, in addition to the current portfolio disclosure, SEBI has asked fund houses to disclose yield at a security level instead of a portfolio level. This can alert investors if a certain set of instruments in a low credit risk fund shows high yields.
The market regulator has also announced certain steps to increase the liquidity in the corporate bond market. SEBI has asked MFs 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.
NSE website explains that ‘Request for Quote’ (RFQ) is a platform for interaction amongst the market participants who wish to negotiate transactions amongst themselves. Simply put, this is a participant-to-participant model where an initiator may request other participants for a quote in corporate bonds, securitized debt instruments, municipal debt securities, government securities, state development loans, treasury bills, commercial papers and certificates of deposit.
The RFQ platform keeps an audit trail of all the interactions i.e. quoted yield, mutually agreed price, deal terms and so on. This brings pre trade transparency for over the counter transactions in eligible securities.
Moreover, all transactions in corporate bonds and commercial papers wherein MFs are on both sides of the trade have to be executed through the RFQ platform of stock exchanges in one-to-one mode. If any transaction entered by a mutual fund in corporate bonds is in one to many mode and gets executed with another mutual fund, it can also be counted for the aforesaid 10% requirement.
