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June 6, 2023

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SEBI: Corporate Bond Transaction via RFQ Platform

SEBI Corporate Bond Transactions via RFQ Platform Explained

Corporate bonds provide regular interest income for investors and portfolio diversification, but the acquisition and sale of corporate bonds are different than trading shares on a traditional stock exchange. Corporate bond trading has traditionally taken place in over-the-counter (OTC) format, where buyers and sellers negotiate prices directly with each other — or through intermediaries.

The first step toward automation and greater electronic processing was the SEBI-supported RFQ (Request for Quote). The RFQ mechanism offers a more structured digital marketplace for dealers and investors to solicit and respond to quotations for corporate bonds and other debt instruments.

Also Read: GST on fees remitted to SEBI: Applicability explained

What Is an RFQ Pciulatform?

RFQ ⇒ Request for Quote. It is an electronic trade execution platform that allows eligible participants to request quotations from other participants over a limited range of debt securities.

Rather than placing a conventional buy or sell order, the participant sends a quote request. Another responder pitches a price and further trade terms. The parties negotiate and agree on the transaction.

As per SEBI's FAQ, an RFQ participant requesting a quote is called the Initiator, which subsequently identifies the participant responding to such request as the Responder. Typically, an RFQ can be issued to a single counterparty via the one-to-one mode or to many participants using the one-to-many mode.

The platforms were introduced by the stock exchanges under their own initiatives in February 2020 to push corporate bond trading toward an electronic and transparent process.

Why would SEBI have introduced the MRQP framework?

They have traditionally been traded under over-the-counter (OTC agreements for Corporate Bonds. OTC trading would afford greater flexibility for the SNB, but it complicates price discovery and visibility of transactions.

The RFQ framework aims to help improve:

Electronic price discovery
Transparency in negotiations
Audit trails for transactions
Access to multiple potential counterparties
Standardisation of trade execution
Efficiency in settlement and reporting

SEBI has further developed the corporate bond market with measures corresponding to a diverse spectrum of participants, such as portfolio managers, AIFs, stockbrokers and FPIs.

Also Read: What is Grey Market and How to Trade in it?

How Does Corporate Bond Transaction through RFQ Work?

This is achieved through a few simple steps.

1. The Investor Identifies the Bond

The participant starts by choosing what corporate bond they wish to buy or sell. Some of these include the issuer, maturity date, coupon rate, credit quality, face value, and market price.

2. The Initiator Creates an RFQ

The participant enters required transaction details in the RFQ platform. It could also include the security, amount, transaction side, and settlement parameters you may need.

The RFQ can then be sent to a recognizable counterparty, or, in certain modes, to many participants at the same time.

3. Responders Submit Quotes

Sellers in turn reply with their quotations. It allows the participant to compare offers rather than only receive a quote on a negotiated price.

This electronic record of your interactions in the RFQ environment also displays information such as what yield you quoted, if applicable, a mutually agreed price, and deal terms.

4. Negotiation Takes Place

Whereas highly liquid shares may trade at one price for a day, corporate bonds do not always have that luxury. Quote. It allows participants to negotiate transaction parameters such as price, yield, quantity, and others.

Typically, the RFQ mechanism supports these negotiations electronically while retaining an audit trail.

5. Both Parties Confirm the Deal

If the buyer and seller are satisfied with the quote provided and agree to proceed under these terms and conditions, this confirms a deal. The FAQ says that acceptance of a quote or confirmation of the total payable amount constitutes mutual agreement for the transaction as per SEBI.

6. Settlement Is Completed

Once executed, the transaction passes through the relevant clearing and settlement mechanisms. Having an electronic workflow can provide better overall organisation and traceability.

One-to-One vs One-to-Many RFQ

One of the main features of RFQ platforms is to be able to choose how the quotes are requested.

One-to-One (OTO):

The RFQ is sent to a selected counterparty by the Initiator. This method is effective when the respondent already has a desired trading entity or relationship.

One-to-Many (OTM):

The RFQ is sent to various participants by the Initiator. That could make multiple quotes available, which might promote price discovery better than other options.

This SEBI framework considers both modes, noting that different requirements may be applied differently depending on the category of regulated participants and the segment or type of transaction.

Who Can Use the RFQ Platform?

Precise eligibility is subject to the regulatory and exchange regime. The platform is targeted mainly at qualified institutional and market participants.

As per the NSE, all regulated entities (including intermediaries), including listed corporates and institutional investors, approved by appropriate regulators or by the exchange are eligible to participate. Participants can either access the platform directly or through trading members eligible for all the major stock exchanges; however, booking trades needs to be done through a trading member.

Similarly, SEBI has specified different requirements for various participants. New rules were put in effect to guide PMSs, AIFs, stock brokers, and FPIs for transactions conducted on bond ref table solutions or RFQ platforms.

This article addresses some of the key advantages that come with bond trading through RFQs.

Better Price Discovery:

When many different counterparties can answer, a clearer view of market pricing will typically be available to investors.

Greater Transparency

As the tracking is created by quotes and negotiation dialogue, so do the records about trade terms power the electronic course.

Reduced Dependence on Manual Negotiation

RFQ platforms have moved traditionally bilateral conversations around bonds into a more regimented electronic framework.

Improved Audit Trail

Electronic records may allow participants and regulators to see the genesis of a transaction, how it was initiated and agreed.

More Efficient Market Infrastructure

The RFQ model integrates trade execution with existing exchange and settlement infrastructure to facilitate a new secondary corporate bond market.

There is still investment risk when RFQ is not taken into account

You are equipped with data until October 2023. An electronic platform would improve the transaction process; it wouldn't eliminate risk from corporate bonds.

Investors still need to evaluate:

Issuer credit risk
Default risk
Interest-rate risk
Liquidity risk
Maturity
Coupon structure
Market price and yield
Applicable taxes and transaction costs

A bond that pays a higher yield could be at a greater level of credit or liquidity risk. As a result, investors should never select a bond based on an attractive quoted return alone.

RFQ Platform vs Exchange OTC Trading

The only difference is the initiation and documentation of the transaction.

Traditional OTC trading is negotiated bilaterally by dealers or brokers among themselves. The RFQ has an electronic means that can systematically capture requests, quotes, and terms agreed upon.

That said, RFQ is not simply a replacement for every OTC transaction. The imbalance between actual electronic price discovery and post-trade reporting is also evident, with a large share of activity on RFQ platforms simply being trades negotiated offline, which was observed by SEBI's 2025 working group.

Indian Corporate Bond Trading is Set to Get a Whole Lot Better

SEBI is still working on the bigger picture to increase India's corporate bond market. In this regard, SEBI also introduced Bond Central in 2025, which is basically a centralised database portal aimed at enhancing corporate bond information access.

This broader effort includes the RFQ framework. This may well become our most powerful tool for a more transparent and efficient bond market, conducted through electronic negotiation, better audit trails, and wider participation.

With an emphasis on technology, RFQ is finding increasing utility for investors in due course as the Indian debt market gets equipped with technological advantages. Knowing the platform is just one side of the investment choice, though. Examine the issuer, credit quality, liquidity, term, and total return before taking a corporate bond position.

Conclusion

SEBI's RFQ system offers a formal electronic channel to facilitate corporate bond trades. Instead of solely relying on traditional bilateral negotiations, eligible participants can request quotes for different terms, compare responses from multiple counterparties, negotiate terms, and lend/trade confirmations through a digital platform.

The transparency, price discovery, and transaction records between participants in the system over time are expected to benefit the growth of India's corporate bond market. Even as SEBI works to strengthen debt-market infrastructure, RFQ platforms are likely to continue to be a key channel used for executing secondary-market corporate bond transactions.

FAQs

1. The concept of an RFQ platform for corporate bonds

An RFQ (Request for Quote) Platform is an electronic system where eligible market participants can request a quote for the purchase or sale of corporate bonds.

2. This is how a transaction in corporate bonds through RFQ works.

The participant creates an RFQ specifying the bond, quantity, and type of transaction. Other eligible participants are, in turn, responding with quotes, after which negotiations can be finalized and the transaction officially committed.

3. One-to-One vs One-to-Many RFQ

A one-to-one RFQ is a request that is sent to a single counterparty. One-to-many RFQ: In this case, the request is sent to multiple potential counterparties so that the initiator can compare different quotes from multiple participants.

4. The SEBI RFQ platform should be utilized by whom?

The platform is mainly open to eligible institutional and market participants, which include regulated entities, institutional investors, listed corporates, and other participants as permitted under the applicable SEBI and exchange framework.

5. Why use an RFQ platform?

RFQ platforms can address and book corporate bond transactions in an effort to drive price discovery, transparency, electronic record-keeping,g and audit trails.

6. Does an RFQ platform completely remove corporate bond investment risk?

Q: Does RFQ come with certain information at the base layer loaded on-chain, such as price-point embeddability? I. Investors have to understand credit risk, default risk, interest-rate risk, liquidity, maturity, yield & other investment-related factors, even in the case of whose bond, etc.

7. Previously, I explained how the key features of RFQ differ from those made possible in electronic corporate bond trading — does RFQ then resemble traditional OTC (Over-the-Counter) corporate bond trading?

No, traditional over-the-counter (OTC) trading typically uses direct or intermediary-based negotiations, while request for quotation (RFQ creates an electronic ecosystem that allows quote requests, mentions of topics, and then transactions between different parties to be recorded.

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