SEBI on June 16, 2023 has issued guidelines for online bond platform providers. SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021, defines “online bond platform provider” as any person operating or providing an online bond platform and “online bond platform” as any electronic system, other than a recognized stock exchange or an electronic book provider platform, on which the debt securities which are listed or proposed to be listed, are offered and transacted. SEBI Circular dated November 14, 2022 (‘OBP Circular’) provides for the registration and regulatory framework for Online Bond Platform Providers.
In light of the NCS Regulations and the OBP circular, it is clarified that following practices observed among OBPs are prohibited:
- Certain Online Bond Platform Providers continue to offer products other than listed debt securities and debt securities proposed to be listed through a public offering on their Online Bond platform;
- Certain Online Bond Platform Providers are offering unlisted bonds/other products on a separate platform/website and have not divested of such offerings in terms of the OBP circular; and
- Certain Online Bond Platform Providers have a link on the online bond platform/website to another platform/website for transacting in unlisted bonds/ other products.
Following guidelines are also provided for OBPs:
Restriction of Products Offered on an Online Bond Platform:
To maintain transparency and protect the interests of investors, it is imperative that online bond platform providers strictly adhere to the regulations outlined in the OBP circular. Firstly, the provider must refrain from offering any products or services that are not permitted under clause 5.2 of the OBP circular. This restriction aims to prevent unauthorized offerings and safeguard investors from potential risks associated with unregulated securities.
Moreover, online bond platform providers are advised to divest themselves of offerings related to other products, securities, or services. This step ensures that the platform remains focused on its core function of facilitating bond transactions and minimizes any conflicts of interest that may arise from promoting unrelated offerings.
Preserving the Integrity of the Platform:
The guidelines extend to the use of the platform’s name or brand name by any third parties, including holding companies, subsidiaries, or associates. These entities are prohibited from engaging in activities or offering products that are not regulated by authorized financial sector regulators such as SEBI, RBI, IRDAI, or PFRDA. By enforcing this provision, the regulatory authorities aim to prevent misleading practices and maintain the credibility of the online bond platform.
Furthermore, online bond platform providers should refrain from including links or tabs to websites or platforms operated by their holding companies, subsidiaries, or associates if those entities engage in activities or offer products that are not regulated by the aforementioned financial sector regulators. This measure ensures that investors are not inadvertently directed to unregulated offerings, reducing the potential for confusion and protecting their interests.
Enhancing Transparency:
In cases where the online bond platform includes links or tabs to websites or platforms offering products regulated by other financial sector regulators such as RBI, IRDAI, or PFRDA, a disclaimer must be displayed to the user upon clicking the tab or link. This disclaimer should clearly state the regulatory authority overseeing the specific product or service, providing users with the necessary information to make informed investment decisions.
User Data Protection and Cross-selling:
To protect user data privacy and prevent unauthorized cross-selling, any entity associated with the online bond platform provider that offers products, securities, or services not regulated by SEBI, RBI, IRDAI, or PFRDA should neither have access to nor receive any information about the users of the online bond platform. This provision reinforces the importance of data security and ensures that users are not subjected to unsolicited offerings outside the regulated scope of the platform.
Expanding Permissible Securities:
In response to representations from online bond platform providers, certain revisions have been made to the OBP circular to allow the inclusion of additional securities. These include listed debt securities, listed municipal debt securities, listed securitized debt instruments, debt securities proposed to be listed through a public offering, listed government securities, state development loans, and treasury bills, as well as listed sovereign gold bonds. By broadening the scope of permissible securities, the regulatory authorities aim to enhance investment options while maintaining regulatory oversight.
Conclusion:
The guidelines for online bond platform providers play a vital role in establishing a secure and transparent investment environment. By adhering to these provisions, providers can ensure the protection of investor interests, maintain integrity, and contribute to the sustainable growth of the online bond market. Embracing compliance and transparency is not only a regulatory obligation but also a means to build trust, attract investors, and foster a robust financial ecosystem for all stakeholders involved.
