BSE to tie up with I-Sec to launch bond index

May 09, 2008
Ashish Rukhaiyar
MUMBAI

BOMBAY Stock Exchange’s (BSE) search for a partner to launch a bond index is over. Asia’s oldest stock exchange is close to joining hands with ICICI Securities Primary Dealership — a subsidiary of ICICI Securities — to use its bond index. The move comes in the wake of capital markets regulator Sebi, asking both the premier stock exchanges to launch a bond index in its endeavour to change the predominantly OTC bond market to a screen-based one.

According to persons familiar with the development, the exchange has already indicated its willingness to use the bond dealer’s index named i-BEX that is used by many of the fund houses. “i-BEX was launched in 1994 and is being widely followed by most fund houses,” said a source who requested anonymity. “The decks have been cleared from the exchange side and issues like licensing fee and revenue sharing have also been sorted out. The deal should be sealed in the coming days”, he added.

The quantum of licensing fee could not be ascertained, though sources say that the exchange would probably have to shell out more than a few lakhs per annum for the index. BSE and ICICI Securities Primary Dealership would have an equal share of any income that the exchange earns while disseminating it.

i-BEX, which was launched in 1994, consists of an umbrella index covering the entire market and sub-indices catering to three contiguous maturity buckets. According to ICICI Securities’ website, “the three subindices are Si-Bex (1 to 3 years), Mi-Bex (3 to 7 years) and Li-Bex (more than 7 years)”. The indices measure the total and principal returns of the respective maturity segments and are updated daily. Incidentally, Association of Mutual Funds of India (AMFI) has been disseminating the i-BEX index via its website since 2002 onwards.

Interestingly, the deal should come as a big relief to the exchange as it was grappling with major hindrances like illiquidity and over the counter trading of the bond market. Constructing a bond index from scratch was the last thing that any exchange would want to do, say industry sources. As a matter of fact, there are hardly any bonds that boast of volumes enough to qualify as index constituents.

In a circular dated April 4, Sebi told stock exchanges to “construct a bond index (both corporate & GoI) and disseminate the same”. The regulator had then said the exchanges are free to decide whether they want to adopt any of the bond index computation models available globally or develop their own model.

Rating agency, Crisil, also constructs bond indices, but is only made available to its paid subscribers that include mutual fund houses and insurance companies. It designs those indices based on credit quality of securities, market feedback and actual trades. As per market buzz, the National Stock Exchange (NSE) is likely to use Crisil for its own bond index. Going ahead, Sebi also intends to introduce derivatives on bond index “based on experience gained and awareness generated”.