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India’s Largest Municipal Bond Programme Launched

Union Urban Development Minister Venkaiah Naidu has launched India’s largest municipal bond programme.

Salient Highlights

The Pune Municipal Corporation (PMC) became the first municipal corporation in the country to tap money through municipal bonds in 14 years. The AA+ rated PMC’s municipal bonds raised Rs 200 crore at 7.59 per cent rate at the Bombay Stock Exchange (BSE).

This is the first-ever mobilisation of debt capital by a municipal corporation on the BSE BOND platform. This will also be the first issuance since the publication of ‘Issue and Listing of Debt Securities by Municipalities Regulations, 2015’ by Securities and Exchange Board of India (SEBI).

The 10-year bonds will be used by the Pune Municipal Corporation (PMC) for a Rs 2,300-crore water project. The scheme is aimed at providing water 24×7 for all residents of Pune.

Pune Municipal Corporation (PMC) was assisted by the US Department of Treasury to create a debt policy. PMC has also planned to prepare a case study based on its experience and share it with other urban bodies to help them raise money from the bond markets.

Since the bonds do not have any guarantee from the state government, an escrow account has been created to deposit the funds for the comfort of investors.

Municipality Bonds

Municipality bonds can be issued by the city corporations to fund developmental projects. Institutional investors, as well as the public, can buy these bonds. The corporations can use the revenues earned from the developmental projects like Metro rail network to repay the interest and principal on these bonds. These municipal bonds have now been permitted for public offering by SEBI.

Municipal bonds have been in existence in India from the year 1997. Cities such as Ahmedabad, Bengaluru, Nashik and Madurai have already issued them. These bonds will help the city corporations to directly raise funds without the help of grants from the state governments or agencies such as World Bank.

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BSE inks cyber security MoU with IIT Kanpur

The Bombay Stock Exchange (BSE) has signed cyber security MoU (memorandum of understanding) with the Indian Institute of Technology (IIT) Kanpur.

IIT Kanpur will assist BSE in testing its vulnerabilities in Information Technology (IT) system and network and help forming guidelines and auditing security operations.

The key highlights of MoU includes

  • Cooperation for cyber security research in financial markets
  • Develop tools to strengthen cyber security and advise BSE in its cyber related issues.
  • Develop and foster an environment to deal with current & future cyber security challenges

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BSE extends direct market access facility to foreign portfolio investors (FPI)

On 19 August the Bombay Stock Exchange (BSE) has extended the direct market access facility (DMA) to foreign portfolio investors (FPI).

Henceforth, the foreign investors will have direct access to the exchange trading system in Indian stock market without any manual interventions of the broker.

Earlier FPI had to conduct stock exchange trading in BSE through the broker who used to manually place the orders on their behalf.

According to SEBI regulations FPI seeking to avail DMA facility would not have to enter into a separate ‘broker- client agreement’ and it would be replaced by a simpler ‘terms and conditions’ document.

Broker’s role:

  • Henceforth the broker have to specifically authorize their clients and have to provide a technologically secure DMA system to their FPI clients.
  • They are obliged to maintain client KYC records relating to exchange trading and have to maintain client margins in a separate bank account and also have to send settlement updates to the client including delivery/payment schedules.

Implications:

  • This step by BSE will provide FPI clients a direct control over their orders, now they can execute orders faster, secure and in transparent manner.
  • It will increase liquidity in stock exchange market and will have lower impact costs for large orders.
  • The FPI clients can now audit trails in better way and can use hedging and arbitrage opportunities through the use of decision support tools i.e. algorithms for trading in better way

About BSE:

Bombay Stock Exchange is the oldest stock exchange in Asia formed by eight native stock brokers association in 1875 located at Dala street, Mumbai.

It got temporary approval by Bombay government in 1927 and permanent approval by Indian Government on 31 Aug 1957.

Today it is 10th largest stock market in the world by market capitalization at $1.7 trillion and has more than 5,000 companies listed in it.

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