In order to strengthen domestic derivatives market and provide more risk mitigating instruments to investors, market regulator Securities and Exchange Board of India (Sebi), on Friday, asked stock exchanges to set up Bond Index.

“It has been decided that, to begin with, exchanges shall construct a Bond Index (both corporate and government) and disseminate the same,” Sebi said in a circular.

Generate awareness

Based on the experience gained and awareness generated, Sebi said derivatives on the index will be introduced to expand investment opportunities in the futures and options segment.

The direction follows Sebi’s earlier decision to introduce seven new products in the F&O segment of the market. The market watchdog further said the exchanges could opt for either globally available model or develop their own model for computing the Bond Index.

However, the market watchdog further added, it would be mandatory for the exchanges to disseminate the method of computation of the index to the investors.

Presently, two kinds of bond indices are in vogue — sovereign bond index and corporate bond index. While the sovereign bond index measures the performance of the bonds issued by government, the corporate bond index reflects the market performance of bonds issued by companies.

 The introduction of the seven new products was suggested by the Sebi-appointed Derivatives Market Review Committee, headed by M Rammohan Rao.