Group moots anonymous NDS order system

The working group on screen-based trading in government securities has called for immediate introduction of a screen-based anonymous order matching system on the negotiated dealing system (NDS), to ensure transparency and better price discovery.

It wants creation of appropriate electronic interfaces between the exchanges, depositories and RBI's public debt office for speedier value free transfer capabilities to facilitate settlement of trades concluded on the exchanges.

The group, headed by R H Patil, chairman of Clearing Corporation of India, also wants an urgent review of the performance and technical capabilities of Indian financial network (Infinet), on which the NDS is based.

It said the review should be entrusted to an independent entity. NDS is an electronic platform owned and maintained by RBI and has been posted on Infinet maintained by the RBI's Institute for Development and Research in Banking Technology.

The group has recommended that the management and regulation of wholesale debt market should remain with Reserve Bank of India (RBI) as long as the levels of gross government market borrowings remain high.

The group headed by in its report released today, said since movements in government securities (G-sec) prices reflect the level of interest rates in the financial system, the G-sec market of negotiated dealing system (NDS) members should remain under the close regulatory scrutiny of RBI on a near real time basis.

It also said given the very high level of fiscal deficit, there is a strong case in favour of keeping the wholesale gilt market of NDS members separate from the retail/mid segment market that would be developed on the stock exchanges.

The group has recommended that banks confine to the NDS market, while primary dealers facilitate trading on the exchange for the retail segment, preferably through their subsidiaries.

The report said the Securities and Exchange Board of India (SEBI) and stock exchanges need to initiate steps to build awareness especially among mid-segment investors about the facilities available for gilt trading in the exchanges.

Brokers on the WDM segment should be compelled to engage in market-making of gilts on exchanges with appropriate cover operations being permitted to them through conclusion of deals with NDS members.