Rbi Seeks Views On Use Of Equity Platform For Debt Settlement

The Reserve Bank of India (RBI) today called a meeting of some leading primary dealers (PDs) and banks in the money market to discuss how the success story of retail investments in the equity market could be replicated in the debt market by using the stock market platform.

The central bank circulated the idea of duplicating settlement, as it takes place in the equity market, in the debt market.

While market participants said it was possible, they identified three key issues, namely settlement, role of a custodian and need for guaranteeing trades to ironed out prior to trading on the stock exchange platform.

Market participants pointed out that using the stock exchange platform would not only help the market expand, but also bring about greater transparency in the dissemination of quotes.

While settlement has been identified as an issue, the market participants stated that with the advent of negotiated dealing system (NDS) and movement towards scripless trading, settlement is not that much of an issue. The RBI is however, keen to duplicate the settlement system as it takes place in the equity market.

Said a primary dealer present at the meeting: "It is possible to duplicate the settlement system as it takes place in the equity market, with some slight modifications".

Much depends upon the role the Clearing Corporation of India Ltd, National Securities Clearing Corporation Ltd and National Securities Depository Ltd.

Members from Fixed Income Money Market and Derivatives Association of India (Fimmda) and the Primary Dealers Association of India (PDAI) have for the last three years been pressing for the need to follow the equity model, if they have to reach out to a wider investing audience.

While the general perception is that duplicating the equity model to push retail trading in government securities is feasible to implement, some bankers questioned how far it would be useful.

"It is difficult to take a call as to how far retail investors will invest in government securities, given that they have alternate deployment avenues like small savings rate," said a senior banker.

A primary dealer however, added that this platform would help to service provident funds and cooperative banks.