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Informist, Monday, Jun. 16, 2025

 

--Sources: CCIL testing system to give FPIs easier access to govt bond mkt

--Sources: CCIL testing system to allow FPIs to request quotes via NDS-OM

--Sources: CCIL system under test allows reporting, matching FPI bond deals

 

By Aaryan Khanna

 

MUMBAI – The Clearing Corp. of India Ltd. is testing out a system to enable easier access for foreign portfolio investors to India's government bond market, according to four people aware of the matter. The new system will enable foreign investors to request quotes from onshore market participants, the people said.

 

The system has been tested out at select foreign banks earlier this month, the people said. The new functionality will be provided on the Reserve Bank of India's Negotiated Dealing System – Order Matching platform, India's government bond trading platform that is hosted by Clearing Corp. Foreign investors would need to register with a custodian bank, which would then enable access to the "Request for Quote" segment of the platform, the people aware of the development said. Any counterparty can then respond to this "Request for Quote".

 

Currently, FPIs mainly trade with custodian banks bilaterally through other electronic trading platforms and the custodian which provides the quote has to make good the quote and do the deal and then report it to Clearing Corp. to meet the RBI regulations. The new system will allow foreign investors more direct access to the market, similar to some constituent subsidiary general ledger account holders and retail participants. Trades using the new system will be automatically reported to Clearing Corp., which is a standard process for all "Request for Quote" trades. 

 

The FPI has to be registered with the Securities and Exchange Board of India and the custodian bank and the FPI will have to ensure enough funds are available in the investors' rupee account to clear the trade. Clearing Corp. will not act as a central counterparty for these trades, guaranteeing settlement, in the system being tested out, the people said. Clearing Corp. acts as a central counterparty and guarantees trades on the regular NDS-OM platform.

 

"It is not so much a trading platform as it is a reporting and matching platform," one of the people said. "The risk of settlement issues is still there."

 

Clearing Corp. did not respond to an email seeking details of the new functionality and its plans to roll it out.

 

FPI holdings of both fully accessible route gilts and Indian bonds under the voluntary retention route have shot up over the past few years, so much so that the SEBI is mulling loosening compliance and regulation for debt-only foreign investors. Fully accessible route bonds, under which foreign investors can buy any quantum of government bonds, have been included in the flagship emerging market debt indices operated by J.P. Morgan and Bloomberg Index Services Ltd. in 2024-25 (Apr-Mar) and will be included in FTSE Russell's index from September. FPI holdings of fully accessible route bonds increased almost tenfold in the four years to March 2025 and is now over INR 3 trillion. Holdings under the voluntary retention route were INR 2.05 trillion at March-end, up around 17% on year.

 

Informist had exclusively reported in April 2024 that the RBI, the market regulator for government bonds, is in talks with three major international electronic platform providers for fixed income markets: MarketAxess, Tradeweb, and Bloomberg. The central bank wants Clearing Corp. to develop the new functionality and then the private players will be given access through an application programming interface, the people aware of the development said.

 

As of now, connectivity with private electronic trading platforms has not been tested, they said. The RBI has issued draft master directions on electronic trading platforms in April 2024, laying down proposed rules for both foreign and domestic operators of such platforms. The final norms have not been issued yet.

 

"The RBI is in favour of routing direct FPI trading access through Clearing Corp. instead of allowing private players independent access," one of the people aware of the development said. "This is similar to a solution that MarketAxess was looking to go for, rather than the Bloomberg model."

 

The system is still in early stage of testing and Clearing Corp. has not given a timeline for its completion, the people said. FPI interest could only be gauged after the platform goes live, as the appeal of easier access would also necessitate a change in workflow for foreign investors. Moreover, with the bulk of inflows tied to India's long-awaited bond index inclusion already complete, it is unlikely that a wave of investors would immediately adopt the functionality when it goes live, the people aware of the development said.  End

 

With inputs from Shubham Rana and Pratiksha

Edited by Ashish Shirke

 

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