**Summary:**
This circular, issued by the Securities and Exchange Board of India (SEBI) on October 6, 2021, modifies the requirements for mutual funds regarding trading activity on Request for Quote (RFQ) platforms. It amends SEBI circular SEBI/HO/IMD/DF3/CIR/P/2020/130 dated July 22, 2020.
The key changes are:
* Mutual Funds must execute a minimum of 25% of their total secondary market trades by value in Corporate Bonds through the RFQ platform of stock exchanges, utilizing a one-to-many quoting mode, on a monthly basis. Inter-Scheme Transfer trades are excluded.
* Mutual Funds must execute a minimum of 10% of their total secondary market trades by value in Commercial Papers through the RFQ platform of stock exchanges, utilizing a one-to-many quoting mode, on a monthly basis. Inter-Scheme Transfer trades are excluded.
These percentages will be calculated based on the average of secondary trades by value in the immediately preceding three months on a rolling basis. All other conditions specified in the original circular remain unchanged. Mutual Funds are permitted to accept Contract Notes from brokers for transactions carried out in both One-to-One (OTO) and One-to-Many (OTM) modes on the RFQ platform.
This circular takes effect on December 1, 2021.
The circular is issued under Section 11(1) of the Securities and Exchange Board of India Act, 1992, and Regulation 77 of SEBI Mutual Funds Regulation, 1996, to protect investor interests and promote the development and regulation of the securities market.
For further information, contact Bithin Mahanta, General Manager, at 022-26449634 or bithin[at]sebi.gov.in.
Key Entities Referenced
Securities and Exchange Board of India: Regulatory body for securities market in India, responsible for issuing the circular.
Mutual Funds: Entities regulated by SEBI, subject to the requirements outlined in the circular.
Asset Management Companies: Companies that manage the investments of a mutual fund.
Association of Mutual Funds in India: Industry body representing mutual funds in India.
Request for Quote platform: Electronic platform of stock exchanges for trading in corporate bonds and commercial papers.
Mutual Fund Advisory Committee: Committee whose recommendations led to changes in the circular.
Corporate Bonds: Debt instruments that mutual funds are mandated to trade through the RFQ platform.
Commercial Papers: Short-term debt instruments that mutual funds are mandated to trade through the RFQ platform.
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Securities and Exchange Board of India
CIRCULAR
SEBI/HO/IMD/IMD-II DOF3/P/CIR/2021/641 October 6, 2021
All Mutual Funds/
Asset Management Companies (AMCs)/
Trustee Companies/Boards of Trustees of Mutual Funds/
Association of Mutual Funds in India (AMFI)
Sir/ Madam,
Subject: Minimum percentage of trades carried out by mutual funds through
RFQ platform
1. SEBI, vide circular SEBI/HO/IMD/DF3/CIR/P/2020/130 dated July 22, 2020, has
mandated mutual funds to undertake at least 10% of their total secondary market
trades in Corporate Bonds through RFQ platform of stock exchanges.
2. Based on the recommendations of Mutual Fund Advisory Committee (MFAC), in
order to further increase the liquidity on exchange platforms, para 1(A)(i) of the
aforementioned SEBI circular is modified as under:
a. On monthly basis, Mutual Funds shall undertake minimum 25% of their
total secondary market trades by value (excluding Inter Scheme
Transfer trades) in Corporate Bonds by placing/seeking quotes through
one-to-many mode on the Request for Quote (RFQ) platform of stock
exchanges and
b. On monthly basis, Mutual Funds shall now undertake minimum 10% of
their total secondary market trades by value (excluding Inter Scheme
Transfer trades) in Commercial Papers by placing/seeking quotes
through one-to-many mode on the Request for Quote (RFQ) platform
of stock exchanges.
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Securities and Exchange Board of India
The percentages as specified above shall be reckoned on the average of
secondary trades by value in immediate preceding three months on rolling
basis.
3. All other conditions specified in the above mentioned circular remain unchanged.
4. Mutual Funds are permitted to accept the Contract Note from the brokers for
transactions carried out in One to One (OTO) and One to Many (OTM) modes of
RFQ platform.
Applicability of the circular
5. This circular shall come into force with effect from December 1, 2021.
6. This circular is issued in exercise of the powers conferred under Section 11 (1) of
the Securities and Exchange Board of India Act 1992, read with the provision of
Regulation 77 of SEBI (Mutual Funds) Regulation, 1996 to protect the interests of
investors in securities and to promote the development of, and to regulate the
securities market.
Yours faithfully,
Bithin Mahanta
General Manager
Tel no.: 022-26449634
Email: bithinm@sebi.gov.in
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