India market regulator approves futures contracts on corporate bond indices

FILE PHOTO: The logo of the Securities and Exchange Board of India (SEBI) is pictured on the premises of its headquarters in Mumbai

BENGALURU (Reuters) - India's market regulator said on Tuesday it has decided to permit stock exchanges to introduce derivative contracts on indices of corporate debt securities rated AA+ and above to enhance liquidity in the bond market.

The exchanges, to start with, are permitted to launch futures contracts on corporate bond indices, the Securities and Exchange Board of India (SEBI) said in a statement.

Introduction of futures on corporate bond indices could be one step towards widening the market by allowing for hedging and arbitrage. While there is a robust derivatives market for equities and commodities, there is no such market for the corporate bonds.

SEBI has been taking steps to deepen corporate debt markets and over the past few months it has moved to regulate retail bond platforms and reduced the minimum investment size for investments in corporate debt.


Stock exchanges desirous of introducing such contracts should submit a detailed proposal to SEBI for approval, the regulator said, adding that the exchanges should put in place necessary systems and make amendments to the relevant bye-laws, rules and regulations.

The constituents of the index should have adequate liquidity and diversification at the issuer level, and would be periodically reviewed, SEBI said.

It added that there should be at least eight issuers in the index, with not more than a 15% weightage by a single issuer, and not more than 25% by a particular group of issuers.

(Reporting by Nallur Sethuraman in Bengaluru and Ira Dugal in Mumbai; Editing by Shailesh Kuber)