 "Gilts trade: RBI move on retail trade has few takers")
The Reserve Bank of India’s (RBI) move to allow all gilt account holders in the central bank’s anonymous bond trading platform, NDS-OM, can be a game changer if certain impediments are removed.
The move will increase the investor base and help a lot of institutional investors which do not necessarily get quotes from their custodian banks to invest in debt paper. By RBI’s definition, a ‘gilt account holder’ is an entity or person, including ‘a person resident outside India’ maintaining a “gilt account” (through which bonds are traded) with a “custodian” bank.
The membership of NDS-OM was strictly limited by RBI but at the same time, the need for broad-basing the investor base was felt necessary to deepen India’s bond market.
Retail (individual) investors can buy the bonds through banks that provide the service. They were, last year, allowed direct access to the bonds but through a different platform.
Banks like IDBI also offer a platform where an investor can take a position in government bonds. However, trading remained almost non-existent.
Trading in NDS-OM itself has technical challenges. The minimum lot of trading in dated government securities and treasury bills are Rs 10,000 and Rs 25,000, respectively. However, the trades are done through the RTGS network, where the minimum transaction is Rs 2 lakh. Hence, the platform itself is not designed to allow retail traders to trade. RBI in October said it was trying to make the platform inter-operable, but this time the central bank has given a date. This week, it said it would issue detailed guidelines by end-June. The framework will include extension of a similar facility to foreign portfolio investors (FPIs).
“If FPIs are given direct access to NDS-OM, it will have a huge impact in the bond market but not so if only retail investors are allowed. This instrument is complex and retail investors are not very interested in government bonds,” said Devendra Dash, senior bond trader with DCB Bank.
In this week’s policy review, RBI said retail and small traders will be allowed an online platform to hedge their currency exposure.
Currency dealers do not see this as a major development, as the limit allowed to retail investors in currencies is only Rs 2 lakh.
The move will increase the investor base and help a lot of institutional investors which do not necessarily get quotes from their custodian banks to invest in debt paper. By RBI’s definition, a ‘gilt account holder’ is an entity or person, including ‘a person resident outside India’ maintaining a “gilt account” (through which bonds are traded) with a “custodian” bank.
The membership of NDS-OM was strictly limited by RBI but at the same time, the need for broad-basing the investor base was felt necessary to deepen India’s bond market.
Retail (individual) investors can buy the bonds through banks that provide the service. They were, last year, allowed direct access to the bonds but through a different platform.
Banks like IDBI also offer a platform where an investor can take a position in government bonds. However, trading remained almost non-existent.
Trading in NDS-OM itself has technical challenges. The minimum lot of trading in dated government securities and treasury bills are Rs 10,000 and Rs 25,000, respectively. However, the trades are done through the RTGS network, where the minimum transaction is Rs 2 lakh. Hence, the platform itself is not designed to allow retail traders to trade. RBI in October said it was trying to make the platform inter-operable, but this time the central bank has given a date. This week, it said it would issue detailed guidelines by end-June. The framework will include extension of a similar facility to foreign portfolio investors (FPIs).
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“If FPIs are given direct access to NDS-OM, it will have a huge impact in the bond market but not so if only retail investors are allowed. This instrument is complex and retail investors are not very interested in government bonds,” said Devendra Dash, senior bond trader with DCB Bank.
In this week’s policy review, RBI said retail and small traders will be allowed an online platform to hedge their currency exposure.
Currency dealers do not see this as a major development, as the limit allowed to retail investors in currencies is only Rs 2 lakh.