NDS rollout peeves debt brokers
Wants ban lifted on over the counter brokers from linking to the central agency
| The banking regulator earlier this week announced the launch of phase II of NDS from August 1. This would be in addition to the negotiated dealing facility established in 2001. |
| Brokers though lauding the RBI's initiative of using modern technologies, they expressed concerns over the ban on OTC brokers from linking to the central settlement agency for reporting purposes and relaxing trading limitations per counterparty. |
| "This is especially given the role of debt brokers limited to price discovery without involvement in the settlement process," said a senior representative at ICAP, a leading international debt brokerage. |
| With a progressive outlook towards supporting market development, ICAP has made a strong pitch to the RBI and the Securities & Exchange Board of India (Sebi) seeking 'no objection' to set up their own electronic broking platform that falls within the ambit of prevailing regulations for dealings in government securities and corporate bonds respectively. This will bring about required transparency in dealings and enhance liquidity. |
| "Similar platforms already exist in the foreign exchange market with the likes of Reuters & IBS and authorised by the RBI," said the representative from ICAP. The international broker proposes to replicate the offerings in the bond markets to meet the requirements of their clients, he pointed out. |
| Unlike RBI's proposed electronic NDS, a proposal has been placed with the RBI and Sebi for the introduction of an alternative electronic broking system that does not operate on an exchange based matching platform but offers pure broking as available on OTC markets globally and approved by regulators such as FSA (UK), SEC (USA), ASIC (Australia), and more reflecting upon the stability and success of the international platform. |
| ICAP feels RBI's sole electronic NDS gives the regulator a monopolistic advantage with exclusive access to a centralised settlement agency that is public infrastructure. Presently about 70 per cent of the trades taking place on the National Stock Exchange wholesale debt market are OTC. |
| Coincidently, this is much in line with the global scenario, whereby development of exchanges and OTC markets tend to compliment each other given the liquidity and volatility cycles, said industry sources. |
| Bonds have unique characteristics which may not be favourable for always trading over an exchange model, given that there may not be two-pricing for a security unlike in the case of equities," said senior brokers. |
| Brokers said, "Life is difficult when your competitor is your regulator". The NDS fragments the government securities market between banks and non-banks and, thus, gives banks an advantage. |