Norms for trading municipal bonds on bourses cleared

'Muni Bonds' to provide good returns

In a move that will help the government enhance urban infrastructure and accelerate setting up of the proposed smart cities, capital market regulator Securities and Exchange board of India on Sunday approved new rules for listing and trading of municipal bonds on stock exchanges.

To be known as ‘Muni Bonds’, such securities will provide reasonable return with less risk to investors, Sebi Chairman U K Sinha told reporters after a meeting with Finance Minister Arun Jaitley.

Municipal authorities with strong financial track record will be able to issue such bonds that can be listed on the stock exchanges, Sinha said.

Sinha said, provident funds, pension funds and insurance companies can also put in their money in municipal bonds. Such bonds are popular in developed countries, he said.

In India too, such bonds have been issued by municipal authorities from time-to-time but the total fund raised by them has not crossed Rs 1,500 crore. The Bangalore Municipal Corporation was the first corporation to issue a municipal bond of Rs 125 crore with a state guarantee in 1997.

Chennai, Hyderabad, Nashik, Visakhapatnam and Nagpur municipal authorities have issued municipal bonds in the past.

But listing and subsequent trading of muni bonds on stock exchanges has been allowed only now. A statement issued by Sebi later said that its Chairman apprised the finance minister of the recent developments in the Indian securities market and the initiatives taken by the regulator.

“He also highlighted the announcements related to the securities market in the Union Budget for 2015-16 and consequent action being taken by Sebi,” the statement said.

“Jaitley discussed the recent trends related to investments by foreign portfolio investors and domestic institutional investors in the securities market. Need for pension money to come to the Indian securities market was particularly emphasised.

“Potential with respect to entry of Real Estate Investment Trusts in the market was also discussed. The finance minister also took note of the roadmap of Forward Market Commission’s merger into Sebi,” the statement said.