Coming Soon: F&O Trading On Government And Corporate Bond Indices By NSE

India's government and corporate bond indices will be available for trading in the futures and options (F&O) segment on the National Stock Exchange (NSE) in the next few months, the exchange MD and CEO Ashish Chauhan announced at the Vibrant Gujarat summit this week. The contracts will be launched on NSE's GIFT (Gujarat International Finance-Tech) platform, India's laissez-faire offshore trading venue like Singapore or Dubai.

In the Indian bond market, the total value of government debt or government bonds stood at Rs 161.1 lakh crore. While corporate bonds were valued at Rs 44.2 lakh crore as of September 2023. The bond or fixed-income market size is rapidly expanding in India and yet the country lacks a vibrant exchange-traded bond market.

India has long struggled to kickstart its exchange-traded bond markets with the country's central bank the Reserve Bank of India (RBI) keeping a tight leash over regulations. But the GIFT platform has lax income tax and other laws that may be an attraction for foreign funds to trade Indian bonds, especially since the country is one of the world's fastest-growing economies, experts said.

Due to the lack of a vibrant bond market in India, the country's EXIM Bank recently 'also' had to list its $1 billion sustainability bond at London Stock Exchange apart from listing the same at NSE's India International Exchange in GIFT. 

One of the reasons for the bond market not picking up in India has been a long-standing turf war between India's two powerful regulators the RBI and stock market regulator SEBI. Bond markets mainly fall under purview of the RBI and successive SEBI chiefs have made unsuccessful attempts to create a friendly environment for bringing bond trading on stock exchange platforms in Mumbai, but have failed. If the G-secs in India are allowed to be held in demat accounts like the stocks by retail investors, it will curtail RBI's role in monitoring the bond markets since its settlement is currently in SGL (Subsidiary General Ledger account) that falls under the RBI.

The FSLRC (Financial Sector Legislative Reforms Commission) led by Justice Shri Krishna had suggested separating the Public Debt Office (PDO) from RBI and making it an independent entity. The PDO is the registering agency for G­Secs and works under RBI. Of late, SEBI has yet again made nearly similar suggestions to the government for the development of bond markets, sources close to the regulator said.  FSLRC had also recommended giving authority to SAT to hear RBI-related cases but not a needle has moved over it.

But the GIFT city platform could be a different ball game since it is being promoted by India as an offshore destination and while SEBI has no role, RBI still attempts to exert its power there.   

Palak Shah

BW Reporters The writer is author of the book: The Market Mafia - Chronicle of India’s High-Tech Stock Market Scandal & The Cabal That Went Scot-Free. Palak has been a journalist in Mumbai for nearly two decades now. He has worked for most premier pink papers including The Economic Times, Business Standard and The Financial Express and The Hindu Business Line. He was drawn to crime reporting at the age of 19 but a few years in the field told him that the fabric of crime had changed and the organised gangs, as Mumbai had witnessed during the eighties, no longer existed. It was business and markets that dominated the scenario. His passion to unravel the intricacies of the ‘white money’ economy led Palak to the world of finance and regulations.