AA–BBB Bond Market-Making Plan by Crisil and AMFI
Why in the news
Crisil and AMFI are drafting a plan to bring market makers into corporate bonds rated below AAA, alongside consultations by the Department of Economic Affairs (DEA).
Key facts
- Trading split: AAA about 66–67%, AA about 33–34%; BBB and lower are hardly traded, so exits are risky.
- MSMEs, NBFCs, HFCs, startups and mid-sized firms, mostly below AAA, struggle to raise debt.
Two models under DEA review
| Aspect | Government-backed | Private |
|---|---|---|
| Market maker | Government-sponsored entity | Large institutions with high capital and net worth |
| Mechanism | Continuous two-way quotes | Backed by a government backstop facility |
| Merit | Confidence and kick-started liquidity | Innovation and competitive spreads |
Framework scope
- Spread management, inventory rules, reporting norms, safeguards against concentrated exposure and price discovery.
Significance
- Investors: better liquidity and exits, access to higher yields.
- Issuers: cheaper debt, improved credit transmission, less reliance on AAA-heavy markets.
Exam angle
- Bodies: Crisil, AMFI, DEA; band targeted: AA to BBB.
- Two-way quotes mean simultaneous buy and sell prices.