Ok, slight correction, this is exchanges directly. Both NSE and BSE had launched a platform called Request for quote (RFQ). So, the Indian bond market is a bunch of pieces across multiple regulators. Corporate bonds are regulated by SEBI. G-Secs, Money market instruments by RBI
For G-Secs there's a platform called Negotiated Dealing System (NDS) for all secondary market trades. But there the minimum order size is Rs. 5 crore and multiples. There's an odd lot market as well but not much trading happens. So this is off-limits for small retailers.
This is why direct investing in G-secs was notoriously difficult and was only possible through G-Secs or Gilt funds. The way G-Secs are issued is that there is an auction and the yield is determined there. So, in 2018 the exchanges introduced something called
Non-Competitive bidding for all investors directly on the exchanges or through brokers. Here retail investors are just price takers based on the yield determined in the auctions. NSE has a platform called GoBid, where you can enter your DP ID and buy T-bills, G-secs and SDLs.
Now, even though corporate bonds are listed on the exchanges they hardly trade. Just a few crores of trades happen in the cash market. Pretty much everything happens offline of over the counter (OTC). Typically, this is how it works. If you want to buy a bond, you call up
a bank, broker, or an NBFC dealing in these bonds. These guys usually hold some papers on their books. They give you a quote and you haggle over the price like you do for tomatoes and arrive at a price. Then SEBI has made it mandatory for all bond deals above Rs 2lks to be
settled through the clearing corporations. So you transfer the money using RTGS to ICCL (BSE) or NSCCL (NSE) and the seller transfers bonds to them and the settlement happens. This is an absurdly complex process. Now since this is a very opaque process there is no price discovery
You can get 10 different quotes on the same bond from 10 different sellers. SEBI/RBI/Fin Min have been talking about deepening the corporate bond markets since 1500 BC but it hasn't happened. One of the reasons why sellers don't want to come on the exchanges is that they'll
lose their margins. Today, they can easily rip-off buyers given that there is no standardized pricing. All the big bond deals anyways happen through private placements. Anyways, the exchanges with SEBI's blessing launched something called as Request for Quote’ (RFQ) platform
to bring all OTC trades onto a transparent platform. It works like this. Let's say you want to buy a bond, you login to the RFQ platform and ask for a quote. The seller provides you one and you guys negotiate it. Once accepted, you settle it directly using the exchange infra
and deals are automatically settled and reported on CBRIC (NSE's corporate bond reporting platform) or ICDM (BSE's corporate bond reporting platform). Yes, there's this too. SEBI mandated that all bond deals be reported on a platform open to everyone. I think they wanted to keep
an eye on what was happening and these platforms were built. Now finally, forcing people to come to a central platform where there is transparency is a good thing. RFQ platform isn't for retail investors. It's for the big guys.
*Not exchanges directly
