Exploring SEBI's OBPP Regulations for India's Growing Bond Market

Hi There, welcome to our AltXtra series where we are decoding high-yield investments. SEBI is focusing on the bond market, and for good reason. As we've mentioned in our previous articles, for an economy to grow quickly, credit (debt) needs to circulate faster. Corporate bonds, SDIs, and other forms of debt financing help make this happen. According to the Indus Valley Annual Report 2024 by Blume Ventures, India's bond market is much smaller compared to its global counterparts.

However, SEBI wants to change this and encourage retail investors to join the market. So, on April 30, 2024, they reduced the face value of privately placed corporate bonds from INR 1 Lakh to INR 10,000! The only catch is that the issuer needs to appoint a merchant banker, which actually makes the process stronger for you as a retail investor.

On 16th October 2024, SEBI also brought in liquidity norms for debt issuers which will enhance the liquidity of the overall market. You can read about it here.

Another big reform by SEBI, introduced in November 2022, is the OBPP regulations. OBPP stands for Online Bond Platform Providers, a special license for platforms that help buy and sell listed, rated, and regulated bonds and SDIs in the Indian market. The regulation has been updated a few times since November 2022. In this article, we'll discuss the legal and regulatory compliances that OBPP platforms like Grip Invest follow and what it means for you as an investor.

If you prefer watching videos, instead of reading blogs, checkout our video here:

What is an OBPP Platform?

OBPP refers to Online Fintech companies operating in the debt market and offering different types of debt securities to retail investors. OBPPs leverage technology to simplify the bond investment process and make it more accessible for retail investors.

These debt securities can be anything like:

1. Securitized Debt Instruments (SDIs)

2. Government Securities (like T-Bills)

3. State Development Loans (SDLs)

4. Sovereign Gold Bonds (SGBs)

5. Corporate Listed Debt, etc

Fintech companies who want to operate as an OBPP, are required to get registered with SEBI as a broker in the debt segment and subsequently apply to a stock exchange to operate as an OBPP.

Need For OBPP Regulation?

Private placement of corporate bonds increased from INR 20,548 Crores during 2007-2008 to INR 414,799 Crores during 2023–2024, a massive increase of almost 20 times. This shows the enormous confidence of the investor in the debt market and in recent years, SEBI observed a surge in the involvement of retail traders in the debt markets. This increased participation large came during and after the pandemic when the public was finding new avenues to make money. To tap into such demand, my fintech platforms came up offering enhanced convenience and user-friendliness for retail investors to invest in debt products.

However, there were certain issues in this space that were not being transparently addressed by certain players, some of them are:

• Offering both Listed and Unlisted Debt on the platform made it difficult for investors to distinguish between them.

• No standard guidelines among all Fintech players to be followed around marketing, compliance, KYC norms, etc.

• No framework to resolve complaints.

• Comparing high-yielding risky instruments with safer options without giving proper disclosures.

SEBI could foresee this as becoming a problem in the future and hence proactively introduced the OBPP regulation to ensure the rights of the investors are being safeguarded.

SEBI Regulations for OBPPs

Each OBPP is required to comply with the Master Circular issued by SEBI. The circular has been updated a couple of times, the link to updated circulars is below, we have used the latest one for this article.

• Master Circular, released on 14th Nov 2022, can be accessed here.

• Clarification Circular, released on 16th Jun 2023, can be accessed here.

• Modification Circular, released on 28th Dec 2023, can be accessed here.

Here is a quick workflow on where you are placed in the overall OBPP framework:

In the below pointers, we have used screenshots from Master Circular except for Point 1 where the latest modified circular has been used.

Products Offered

Previously only listed debt securities and debt securities that were about to be listed by a public offering were allowed. SEBI through a revised circular on June 16, 2023, added Listed Municipal Debt, SDIs, G-Secs, SDLs, Treasury Bills, and other regulated products that can be offered by an OBPP. All of these products also have to be rated by a established rating agency in India.

Grip Invest offers some unlisted SDIs which many readers may think is in violation of point 5.2.1, however these securities are regulated by RBI and covered under point 5.2.5. Here is the clarification on their website.

Restriction On The Sale Of Other Products

An OBPP is restricted from offering any products other than those permitted by SEBI (discussed above) either through its website or a related holding company under the same brand name and even restricts the regulated platform from having any 3rd party link (on its website) that can facilitate investments in unregulated products.

This means that these platforms cannot promote any unregulated investments like invoice discounting, direct asset leasing, unlisted corporate debt, etc under the same OBPP brand name.

Regulatory Compliance

An OBPP is required to get registered with SEBI as a broker in the debt segment. SEBI through the circular has delegated the power to monitor the operations of fintech companies to Stock Exchanges (NSE & BSE)

Request for Quote Platform (RFQ)

RFQ is an execution and settlement platform of debt securities introduced by SEBI in October 2022. This was done to bring in more transparency in the Over-the-Counter trades. NSE operates through CBRICS and BSE through NDS. You can access the RFQ circular here.

On 5th Oct 2023, Grip Invest became the first OBPP platform to fully integrate with the NSE RFQ platform for end-to-end order execution. Since then, many more platforms have followed the same approach. Checkout Grip's RFQ launch video here:

Grievance Redressal

Complaints of an investor must be addressed by the OBPP within 30 days from the date of issue and it is required to disclose the number of complaints raised, resolved and open complaints. SEBI has designated SCORES as a platform to register the complaints of an investor.

Checkout this detailed article on how you can file a complaint on SCORES.

Clearing Operations

Orders placed on the RFQ platform shall be sent to NSCCL for trades on NSE and ICCL for trades on BSE, for settlement clearing-house functions and securities will then be credited into the demat account of bond-holders.

Relevant Management Requirement

The OBPP platform is supposed to appoint a Company Secretary as a Compliance Officer and also appoint two qualified key managerial personnel with experience of at least 3 years in the securities market.

Level Playing Field Across Platforms

All OBPP platforms have to showcase the below info for every security they list on their platform increasing transparency and comparability.

Rules for Advertisement

OBPP platform also have to follow stringent rules for advertising about their platform, products and services. They also cannot use any celebrities to do any advertising. Similar regulations also apply to Mutual Funds industry and other SEBI registered entities.

Conclusion

To conclude, SEBI's new regulations are a step in the right direction for India's bond market by making it more accessible and transparent for retail investors. By reducing the face value of corporate bonds and introducing the OBPP framework, SEBI aims to boost investor confidence and participation.

As retail investors, this opens up new opportunities for diversified and potentially high-yield investments. If you are a first-time investor entering into alternative investments, we urge you to not get swayed by high yields of unregulated products, try out your experience on OBPP platforms, get more confident with how things work and then evaluate other options available to you from an investment point of view. Stay informed and consider exploring these avenues to enhance your investment portfolio.

Thank you for reading this comparison article, and thank you to Grip Invest for sponsoring the WealthX series. We have many more interesting pieces coming up, and we hope you will enjoy them. If you have any feedback, please don't hesitate to reach out to us at ALT Investor or Grip Invest.

Investments in debt securities/municipal debt securities/securitised debt instruments are subject to risks including delay and/ or default in payment. The investor is requested to read all the offer related documents carefully and to take into consideration all the risk factors before subscribing to debt instruments.

This communication does not constitute advice relating to investing or otherwise dealing in securities and is not an offer or solicitation for the purchase or sale of any securities.

Neither ALT Investor or its associates/associated entities, assigns or affiliates takes or accepts any liability for consequences of any actions taken based on the information provided.