Search the Internet          Tips  Sites: Finance, Investment

Debt instruments to be listed for trading soon: Mehta

Fakir Chand in Bangalore

There is some good news coming up for retail investors, especially those who might have burnt their fingers in the equity markets over the years.

The Securities Exchange Board of India (Sebi) will soon issue guidelines for permitting companies to list their debt instruments for trading them as securities on the stock exchanges across the country, beginning with the BSE and NSE.

The regulatory body of the Indian capital markets is currently having a dialogue with the Reserve Bank of India on working out the modalities for listing, trading and transactions.

In an exclusive interview to rediff.com in Bangalore during the week-end, Sebi chairman D R Mehta said in the first phase about 100 companies would be allowed to trade their debt instruments like corporate deposits raised through private placement, after listing on the stock markets.

"Trading in all debt securities will be in the dematerialization (demat) format only. We are working out the framework under which companies could be allowed to trade their debt funds," Mehta said.

Explaining the advantages of trading in debt issues over equities, Mehta said such an opportunity would enable even retail investors to participate in debt market, as they would also be assured of fixed returns unlike in the case of equities.

"The board is meeting later this month to identify the first 100 companies, including mutual funds (MFs) which could be permitted to list their debt securities on the BSE as well as the NSE, initially.

Discussions are already underway with the RBI to work out the norms.

We are also exploring the possibility of persuading those companies whose equities are already listed and being traded to bring out their debt portion for trading by listing on the same exchange. If the response is encouraging, then it can be made mandatory for all companies to trade their debt instruments, which are now privately placed," Mehta asserted.

Once the trading picked up and reached certain volumes, the facility would be extended to other stock exchanges on the country, for which the software had to be developed by the respective exchanges," Mehta affirmed.

Currently, debt securities are not eligible to be listed on the secondary market for trading.

Hoping that debt trading would begin at least from the second quarter of the coming financial year (2001-02), Mehta averred that time had come for developing the Indian debt market on the lines of its counterpart which were maturing off late.

Sebi will also look forward for the recommendations of the high-powered committee being set up by the finance ministry to accelerate the growth of debt market in the country, as hinted in the budget proposals last week.

"The objective is two-fold: to bring in transparency in debt trading and allow small investors to compete in the secondary market alongside the institutional players. Retail investors can also participate through MFs. It will also give then an alternative to switch over from equities," Mehta said.

With trading in derivatives like index futures on the BSE and NSE becoming active, Sebi has permitted the stock exchanges to begin trading in index options from next month. "The software is being developed for launching this derivative product. An announcement is expected shortly."

Mehta also reiterated that the implementation of corporate governance by all listed companies would become mandatory with effect from April, as recommended by the Kumaramangalam Birla Committee, set by Sebi.

Hailing the budget for being positive and growth-oriented, Mehta said Sebi was happy that the finance minister had responded favourably on some of the suggestions it made to revive and sustain the capital markets.

"For instance, the increase in the combined holding by the foreign institutional investors to 49 per cent, reduction in divided tax, two-way fungibility in ADRs/GDRs, and exemption from capital gains tax on amounts to be invested in the primary market were all suggested by us."

On the issue of allowing MFs and banks to raise overseas funds, Mehta said Sebi was looking forward for guidelines from the ministry to issue permits. "As of now, UTI had raised such funds in Mauritius after securing the government permission.

Hereafter, the MFs and banks will have to approach Sebi. They will have to follow the prudential norms to be set by the board. Tax exemptions on such funds are also under consideration," he added.

ALSO READ:
Sebi to move against brokers: Mehta
Sebi probes stocks fall, to review margins: Reuters

Money

Business News

Tell us what you think of this report