The world's largest interdealer broker, Icap, has filed an application on behalf of its local subsidiary to the Securities and Exchange Board of India, to establish the first specialised exchange for corporate bonds and fixed income derivatives.
The new platform will primarily serve the country's institutional clients and is pending approval by the regulator.
A spokesperson from the London-based company told local media that the proposed exchange is still in its early stage of development and more work has yet to be done. The company said that it is committed to long-term business growth in India's capital markets via the establishment of the exchange.
Its introduction is expected to further enhance the depth, liquidity and transparency of the local corporate bond and derivative segment, as well as providing more hedging tools for issuers of derivatives and structured products. This could also lead to better price discovery for structured bonds as most corporate issuers have so far this year resorted to the issuance of high-yielding, long dated callable debentures to refinance their maturing debts with borrowing costs ranging from 9% pa to 28% pa, according to the SRP database.
There has been a sharp plunge of 86% in the notional amount raised via callable and putable debentures in 2011 from its height of around US$5bn in 2010, with a slight recovery this year with volumes just short of $860m.
The firm's local entity, Icap India, is currently the most active market maker in the interdealer market dealing in government securities, corporate bonds and fixed income derivatives. It plans to expand its product lines in the country to include interest rate swaps, forex forward contracts and corporate bonds with the new electronic platform.
So far this year, the group has captured 25% of the market in the global money broking business with average daily turnover exceeding US$1tr, of which half comes from electronic trading.