MUMBAI: India's securities market regulator Sebi is planning to allow sale and repurchase agreements or repo in corporate debt

on stock exchanges. Policy makers believe that an exchange-traded platform for trading of corporate bonds will infuse greater liquidity of the underlying product and also widen the investor base both in the secondary and primary debt markets. It will also give market participants access to relatively cheaper funds. The proposal was discussed at a recent advisory commit-tee meeting on corporate bonds convened by Sebi. Repo deals enable traders to exchange corporate bonds for cash, with an agreement to repurchase it at aprice and date pre-agreed price. The difference between the sale and repurchase price being the cost of borrowing to the lender. Last year in December, the central bank allowed corporate bond repos and the first deal was struck between ICICI Securities Primary Dealer-ship and Infrastructure Development Finance Company or IDFC. Ads by Google

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However, since then there has been no transaction. Analysts say that in corporate bond repos, the pricing is not uniform and the applicable margins are too steep. "Regulators should consider introduction of corporate bond repos on ex-changes in a standardised manner ," said RH Patil who heads Sebi's Coporate Bonds and Securitisation Committee. The repo market is now an over-thecounter market, where participants strike deals over the telephone rather than on the floor of an ex-change , and the transaction is reported on the Fixed Income Money Market and Derivatives Association platform. The tenure of such se-cured borrowing can range from one day to a year. Market participants say that if corporate bond repos are allowed on the exchange platform it could be similar to the collateralised borrowing and lending obligation or CBLO market. "It has to be like a collateralised borrowing and lending obligation transaction in a government security wherein the security lies with the clearing house and the identity of the buyer and seller is not revealed and so the pricing doesn't get impacted," said Ajay Manglunia, senior vice president, Edelweiss Securities. "The applicable margin should be according to the volatility ratio of the underlying security." In the CBLO market, pricing is done on the online platform, which enables players to borrow from the cheapest lender. But in the repo trade in corporate bonds, one would have to find a lender and negotiate the price as it is not technology-enabled. Also in the CBLO market, margins range between 0.5% and 5% depending on the tenure of the bond, whereas in the corporate bond market, the applicable margins are in the range of 10-12 %, which is steep and also not linked to the duration of the bond but depends on the rating.