Mutual funds will have to undertake at least 25% of their secondary markets trade in corporate bonds through the Request for Quote (RFQ) platform of stock exchanges from December 1, 2021, SEBI said on Wednesday.
At present, they are required to undertake at least 10% of secondary market trade in corporate bonds through the platform.
SEBI has also made it mandatory for mutual funds to execute 10% of transactions in commercial papers through the RFQ platform.
Previously, use of RFQ platform was compulsory for trade in commercial papers only when trading was happening between two mutual funds.
"We were doing 10% of the trades in corporate bonds through the platform. Now we have to do 25%. The move is in the right direction. It will lead to broad based use of the RFQ platform," said Lakshmi Iyer, CIO (debt) and Head of Products at Kotak Mutual Fund.
SEBI said the move would further increase in liquidity on exchange platforms.
The regulator first made partial use of RFQ platform mandatory for mutual funds in July 2020. Its aim was to boost liquidity on the exchanges and enhance transparency in debt schemes.
According to NSE, 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 on a debt instrument.
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.
