Introduction

A Mark Down is the reduction in the sale price of a bond taken by a broker or dealer as a form of compensation when executing a sell order on behalf of an investor. It represents the difference between the market price and the price at which the investor’s bond is sold, with the difference being retained by the broker as a transaction fee or commission.

In simpler terms, a mark down is like a "cut" taken by the broker for facilitating the sale of your bond in the secondary market. It is deducted from the proceeds you receive after the sale and is not always itemised separately, making it a non-transparent cost in many over-the-counter (OTC) transactions.

What Is a Mark Down in Bond Markets?

A mark down occurs when:

• An investor decides to sell a bond.
• The dealer or broker buys it at a price lower than its current market value.
• The difference between the actual market value and the purchase price is retained by the broker as compensation.
• This is different from a mark up, which is charged when a broker sells a bond to an investor.

How Mark Down Works

Example:

• Current market price of a bond: ₹1,000
• Broker offers to buy it from the investor at: ₹980
• Mark down = ₹20 (₹1,000 – ₹980)
• The investor receives ₹980, and the broker retains ₹20 as compensation for managing the trade.

Where Do You See Mark Downs?

• Over-the-counter (OTC) bond trades, where prices are not listed publicly.
• Private placements or negotiated deals, often with high net-worth individuals or institutions.
• Secondary market bond platforms operated by distributors or investment advisors.
• In exchange-traded bonds, mark downs are less common due to price transparency and tighter bid-ask spreads.

Mark Down vs Commission

Investor Impact

Pros:

• Simplifies the transaction for the seller (one price, no itemised fees).
• Reduces upfront hassle of negotiating or paying separate commission.

Cons:

• Lack of transparency—investors may not know the real market value.
• Lower sale proceeds than what could be achieved through a more competitive platform.
• Difficult to assess true cost of the transaction.

How to Avoid or Minimise Mark Downs

• Use exchange-based platforms like NSE or BSE where price discovery is transparent.
• Request a quote comparison or a price benchmark before selling.
• Negotiate the mark down with the broker, especially in large-volume sales.
• Work with SEBI-registered advisors who are obligated to disclose compensation.

SEBI Regulations and Fair Practice

• The Securities and Exchange Board of India (SEBI) mandates:
• Disclosure of fees, spreads, and charges associated with financial transactions.
• Brokers and advisors must operate in the best interest of the client, avoiding excessive mark downs or mispricing.
• Retail investors are encouraged to ask for trade confirmations showing both the price executed and the prevailing market rate.

Conclusion

A Mark Down is an important but often overlooked cost in bond transactions, particularly in off-exchange and privately negotiated sales. While it serves as a legitimate form of broker compensation, a lack of transparency can reduce investor returns and distort price understanding.

Being aware of how mark downs work—and proactively asking questions before selling a bond—can help you retain more value from your investment and make more informed, cost-effective decisions.