While the equity markets in India have reached some maturity, it is the corporate debt market, which has been lagging being. The regulator, Sebi is about to change this with bringing in several proactive measures.

Firstly, Sebi plan to regulate exchange trades bonds, it also has created the framework for a new hybrid product, whereby the corporate sector can raise debt at a lower cost by way of domestic convertible bonds. Also by January 2009, Sebi will allow interest rate futures to be traded.

There is also a possibility of a separate exchange for derivatives. According to ASSOCHAM estimates, if derivative trading in India is estimated at Rs10,000 crore each day, their volumes could scale a rise of more than 100 times provided an effective exchange is put in place for derivatives.

All these three moves are aimed at ushering in a new era in India's corporate debt market.

Exchange traded bonds
India has been trying to introduce exchange-traded bonds for three years to enable companies to raise long-term funds for big projects.

India needs $500 billion investment in infrastructure sector in the five year period ending March 2012.

The corporate bonds private placement business each day is currently between Rs300 and Rs400 crore and if the infrastructure sector has to receive a booster, approval for exchange traded corporate bonds have to be given in next couple of months to facilitate liquidity in the bond market which is currently sized at Rs1,20,000 crore annually, said Wholetime Member SEBI.

He further pointed out that SEBI is finalising transparent and simplified guidelines and policy framework to introduce exchange traded corporate bonds.

On the issue of separate exchange for Derivatives as recommended by ASSOCHAM, Dr. Nair said that it could be a possibility but this will happen after the Indian system has fully comprehended it implications. A decision to this effect has to be collectively taken by SEBI and RBI with due approval from Government of India.

Companies can raise low-cost debt by allowing investors to detach the equity component from the instrument and trade in it.

Domestic Convertible bonds
Domestic convertible bonds are local equivalent of foreign currency convertible bonds (FCCB). SEBI has amended its disclosure and investor protection (DIP) guidelines to provide for a combined offering of non-convertible debentures (NCDs) with warrants, through the qualified institutional placement (QIP) mechanism.

While NCDs and warrants would be offered together, they can be listed and traded separately. The minimum contract value for trading of NCDs/warrants has been set at Rs1 lakh.

With this product having an option to convert debt into equity, issuers can raise debt at a lower interest rate. The idea was to deepen corporate bonds market by providing it greater liquidity.

Interest rate futures
Interest rate futures are contracts that have interest-bearing instrument like treasury bills as underlying assets. In India, these instruments were first introduced in 2003. However, due to wide price disparity between the spot and the futures market, it did not take off.

This time care is being taken that the pricing mechanism would be more realistic and the hedger would have different tenors to choose from.  Sebi has set January 2009 as the deadline to launch interest rate futures.