Market making mechanisms for development of non-financial corporate retail bond market of India-An empirical study

The silver lining of the corporate Bond Market globally could be visible during the 2008 financial crisis period. In some of the European countries and United States (US), multiple reforms in the corporate Bond Markets were carried out leading to significant growth of the corporate Bond Markets. Globally the average Non-Financial Corporate (NFC) Bond issuances increased to USD 1.7 Trillion per year from the years 2008 to 2018 as against USD 864 Billion per year during the years leading to financial crisis till 2008. The outstanding NFC Bonds were USD 13 Trillion at the end of 2018 which was double the outstanding NFC Bonds in 2008. The Retail Bond Markets were created in most of the nations with distribution of Retail friendly Government Bonds. In India, during the Forties, Fifties and early Sixties the Retail household investors invested largely in Retail Government Bonds. The NFC Retail Bond Markets are success stories in some of the European countries including London stock Exchange in United Kingdom (UK) and US. In India, despite path breaking initiatives of the Government and the Regulators, the liquidity in the secondary corporate Bond Market in absence of active Retail investors remain shallow. It has become essential for India to channelize the Household savings to the capital Market with its robust target of becoming USD 5 Trillion economy within 2024–25. The retail individual investors are also looking for alternatives to Bank Deposits and Small savings schemes with successive reductions of interest rate in these traditional investments. Though there are many research studies on development of corporate Bond Market and Household investors’ investment preferences, in general, studies focused on development of Retail segment of NFC Bond Market in India are hardly available. The Government has though created Debt segment in stock Exchange, yet the same is not active and liquid till date. This Paper analyses the Market Making Mechanisms (Market Makers and Market Infrastructure) and Regulations in the successful NFC Retail Bond Markets of the (i) European countries with focus on Italy and UK (London Stock Exchange) and (ii) US, based on secondary data. The attractiveness of these Market Making Mechanisms drawn from Global lessons, to the Retail individual investors of India have been then measured through Questionnaire in Five Point Likert Scale based on Primary survey of 447 respondents out of 500 individuals selected on random basis from six districts of West Bengal. Results reveal that significant percentage of retail individual investors have likeliness for Commercial Banks, Online Financial Advisors’ Network, Registered Stock Exchange Brokers, Post Office Banks and Merchant Bankers as ‘Dedicated Market Makers for Retail Bonds’. Again, ‘Dedicated Infrastructure for NFC Retail Bond Market’ with easy access to online and physical Buy and Sell Points, online trading platform, onscreen transparency of transactions, creation of Special Purpose vehicles by Dealers and online Multiple Trading Facilities are the top five choices of the retail individual investors for attracting their direct investment in NFC Retail Bonds.