Registration for Online Bond Platform Provider (OBPP)

Introduction

Over the past decade, India's financial landscape has experienced a profound digital evolution, leading to a transformation in traditional investment avenues propelled by technological advancements. Notably, the emergence of Online Bond Platform Providers (OBPPs) stands out as a significant innovation, democratizing bond trading through convenient and accessible online platforms for investors.

In recent years, there has been a notable uptick in the proliferation of Online Bond Platforms (OBPs), which cater to non-institutional investors by offering access to debt securities obtained through subscriptions to public issues/private placements and via the secondary market. The majority of these OBPs are fintech companies or are supported by stockbrokers/SEBI registered intermediaries.

This surge in OBPs has coincided with a marked increase in the number of registered users who actively engage in transactions through these platforms.

This transformation has not only altered market dynamics but also introduced novel concepts and methodologies to the industry. The integration of technology and innovative solutions has broadened opportunities for a wider spectrum of investors, thereby fostering a more inclusive and accessible debt market in India. In this article, we aim to delve into the concept of OBPPs, elucidate their significance in the financial sector, and delineate the advantages they offer to both investors and issuers.

Understanding OBPP

An OBPP is like a digital store where you can buy and sell bonds, which are like IOUs issued by companies or governments. These platforms make it easy for regular folks, not just big institutions, to invest in bonds. They use technology to simplify the whole process, so you can do it all online without any hassle.

Think of OBPPs as middlemen who help connect buyers and sellers of bonds. They set up a website where you can see all kinds of bonds available for purchase. You can check out details like what the bond offers, its safety rating, how much interest it pays, when it matures, and all the important paperwork.

With OBPPs, you can compare different bonds to see which one fits your needs best. This helps you understand the risks and rewards of each bond, so you can make smart decisions about where to put your money. It's like having a handy guide to help you navigate the world of bond investing.

In other words, it is SEBI-registered Online Bond Platform Provider, serves as a facilitator for the buying and selling of bonds. Acting as intermediaries, these platforms furnish investors with a variety of bond investment options and enable seamless bond transactions. Utilizing technology, OBPPs streamline the bond investment process, enhancing accessibility and efficiency, particularly for non-institutional investors. They establish an online ecosystem and furnish comprehensive information about bonds. This enables investors to peruse a diverse selection of bonds, evaluate their features, credit ratings, interest rates, maturities, and offer documents. By facilitating comparisons between different bonds and assessment of their risk-return profiles, OBPPs empower investors to make well-informed investment decisions.

Frame Work

Following discussions with market participants and stakeholders, a framework has been prescribed through a notification dated November 09, 2022, for entities intending to operate or already operating as OBPPs under regulation 51A of the SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021 (‘NCS Regulations’).

Under this framework:

• Entities aspiring to function as OBPPs must be companies incorporated in India and register themselves as stockbrokers in the debt segment of the Stock Exchange(s).
• Any entity acting as an OBPP before or upon the enforcement of this circular must limit its offerings on its platform solely to listed debt securities and debt securities proposed for listing through a public offering. Such OBPPs must divest themselves of other product or service offerings.
• These entities, apart from adhering to regulation 51A of the NCS Regulations, must ensure compliance with the requirements outlined in the circular.
• OBPPs are prohibited from offering any other financial security aside from bonds.
• All OBPPs are mandated to ensure that orders are routed and settled through the stock exchange mechanism, specifically through entities such as ICCL/NSCCL.
• OBPPs are exclusively permitted to feature bonds that are either listed, slated for listing, or issued by the government on their platforms. They are explicitly prohibited from showcasing unlisted debt securities.

This circular is issued pursuant to the powers vested under Section 11(1) of the Securities and Exchange Board of India Act, 1992, read in conjunction with Regulation 55(1) of the SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021. Its objective is to safeguard the interests of investors in securities and promote the development of, and regulate, the securities market.

Benefits of OBPPS

In the modern financial landscape, the emergence of Online Bond Platform Providers (OBPPs) heralds an era of heightened accessibility and transparency for investors navigating the realm of online bond investments. These digital platforms, serving as intermediaries, go beyond facilitating bond transactions, empowering investors through various avenues:

1. Broad Spectrum of Investment Options: OBPPs offer investors an extensive array of bond choices. This includes comprehensive details on bond features, credit ratings, interest rates, and maturity profiles, along with immediate access to offer documents. This shift marks a departure from the opaque nature of traditional bond markets.

2. Transparent and Empowering Environment: By democratizing bond investing, OBPPs transform complex financial instruments into accessible channels for a diverse range of investors. This commitment underscores our dedication to fostering inclusivity within the bond trading platform landscape.

Engaging with an OBPP entails the following steps for aspiring investors:

1. Account Initiation: The initial step involves opening a demat account through recognized stock exchanges, serving as a pivotal requirement for engaging in transactional activities.
2. Compliance Verification: Completion of the Know Your Customer (KYC) process is a subsequent imperative, aligning investors with the foundational tenets of the regulatory framework.
3. Secure Transactions: Ensuring the secure transfer of investment funds to institutional entities such as ICCL/NSCCL reinforces the integrity of every transaction, providing investors with peace of mind.

Requirement to operates as OBPP

Any entity currently operating or intending to operate an Online Bond Platform (OBP), must, subsequent to acquiring registration as a stockbroker in the debt segment of Stock Exchange(s), submit an application to a recognized stock exchange to function as an Online Bond Platform Provider (OBPP) as outlined under NCS Regulations.

1. Registered Stock Broker: Entity must be registered its self as Stock broker in debt segment under SEBI
2. Compliance officer: before applying for OBPP, entity must appoint company secretary as its compliance officer.
3. Key managerial person: The proposed entity must has appointed two qualified KMPs with experience of atleast 3 years in the securities market.
4. SCORES: The entity has acquired SEBI Complaints Redress System (SCORES) authentication and has established a well-defined mechanism to address grievances that may arise or are likely to arise during the course of OBP operations.
5. Technology: The entity possesses, operates, and upholds a robust technology infrastructure characterized by a high level of reliability, availability, scalability, and security concerning its systems, data, and network. These measures are appropriately designed to support its operations and mitigate associated risks effectively.

Additionally, the entity has implemented adequate and suitable systems to disseminate transaction-related information in real-time or near real-time.

Moreover, the entity demonstrates organizational capabilities, technological proficiency, and established systems to ensure data privacy maintenance and prevent unauthorized data sharing. Furthermore, the entity commits to providing open access and an open architecture to all potential investors/sellers on a non-discriminatory and uniform basis.

6. Deeds and Agreement: In instances where the entity permits third-party sellers of debt securities to utilize the OBP for selling such securities, the entity must, prior to undertaking the offering of such securities on its OBP, establish a written agreement. This agreement will delineate the inter-se relationship between the entity and the third-party sellers, outlining their respective rights, liabilities, and obligations.
7. Know Your Customer (KYC): The entity is required to adhere to Know Your Client (KYC) requirements and verify the identity of its investors and sellers. This entails requesting them to submit the requisite documents and undertaking necessary steps to fulfill this obligation.
8. Risk Profiling: The entity may utilize a set of questionnaires on its OBP to assess the optimal level of investment risk that an investor or seller is willing to undertake. These questionnaires will incorporate appropriate risk factors and disclaimers, considering various elements such as risk appetite, age, investment horizon, and other relevant factors.
9. Entity is required to issue the following documents:
   1. Order receipt to the investor upon placement of an order.
   2. Deal Sheet to the investor after the execution of the order.
   3. Quote receipt to the seller following the execution of the order.
10. Disclosure: The entity is obligated to identify and disclose on its OBP any instances of conflict of interest that may arise from its transactions or dealings with related parties. Moreover, the entity must adhere to the minimum disclosure requirements concerning securities offered for sale, as stipulated in the Circular. These requirements include:

1. Clear identification and disclosure of any conflicts of interest arising from transactions or dealings with related parties.

2. Compliance with minimum disclosure standards for securities offered for sale, as outlined in the Circular.

Additionally, in cases where there is reference to another platform offering products or services regulated by financial sector regulators, the following disclaimer must be prominently displayed: "[Name of Platform] is regulated by [Name of Financial Sector Regulator]."

11. Other additional requirements as prescribed registration and regulatory framework for online Bond Platform Providers (OBPPs)

Documents required

1. Request Letter to act as OBPP
2. Board Resolutions (For appointing authorized signatory)
3. Details of compliance officer
4. Details of KMPs and related proof
5. Undertaking/Declaration

FAQs

1. What are ICCL and NSCCL?

ICCL (Indian Clearing Corporation Limited) and NSCCL (National Securities Clearing Corporation Limited) are key entities in the Indian financial market responsible for providing clearing and settlement services for equity and equity derivatives. ICCL operates as a subsidiary of the Bombay Stock Exchange (BSE) and acts as the clearing corporation for trades executed on the BSE. Similarly, NSCCL functions as a subsidiary of the National Stock Exchange (NSE) and serves as the clearing corporation for trades executed on the NSE. Both ICCL and NSCCL play a crucial role in managing and reducing risks associated with settlements, thereby ensuring the smooth operation, stability, and integrity of the Indian stock exchanges.

2. Regulator of OBPP?

OBPPs in India are regulated by the Securities and Exchange Board of India (SEBI) through a regulatory framework outlined in a circular dated November 14, 2022.

To operate lawfully as an OBPP, entities must fulfill certain prerequisites:

• Obtain stockbroker registration under the debt segment of stock exchanges.
• Acquire an OBPP license from SEBI.

Additionally, OBPPs must adhere to the following requirements:

• Meet specified net-worth criteria.
• Comply with stringent customer authentication and Know Your Customer (KYC) procedures.
• Implement effective grievance redressal mechanisms to address customer concerns.