Time ripe for Euroclear like model for gilt settlement: Experts

Euroclear system is world's biggest securities settlement system

With the Reserve Bank of India (RBI) and the Union finance ministry working towards a new platform for settlement of government bonds, on the lines of Euroclear, experts said it was time that our financial markets evolve to adopt it.

Euroclear is the world’s biggest securities settlement system. RBI has said it was working towards allowing settlement of government bonds in a like system. It has said it wished to strike a balance between loss of liquidity in the local market and providing ease of trading for foreign investors. Earlier this month RBI deputy governor H R Khan said they were working on a Euroclear-like model with the government. Trading and settlement under the new model will be on the RBI platform.

TAKING A (EURO) CLEAR PATH
Advantages of allowing settlements of government bonds in the Euroclear-like system

• Will provide ease of trading for foreign investors in Indian g-sec
• Will ensure that liquidity is not impacted
• Will lead to broad base of foreign investors across risk and investment categories
• Will help Indian financial markets evolve

“This step is probably required and it is high time they do it. This will be a step in the right direction for the financial markets,” said Ashish Vaidya, executive director at DBS Bank.

Finance Minister Arun Jaitley had said the government would be going ahead with listing Indian debt on Euroclear.

“Foremost, it is a great relief for existing foreign investors to operate from home markets without the need to go through the process of registration with foreign regulators. This will also result in broadbasing of foreign investors across risk and investment categories,” said J Moses Harding, group chief executive, liability and treasury management, Srei Infrastructure Finance.

He said the initial challenge would be from possible one-way interest in the market, on the buy or sell side. “The issue will be on the capability to infuse liquidity either way to cut excessive price volatility. Given the fact that global cues have greater impact on the prices of Indian asset markets, there is no reason to get scared from liquidity and price volatility. The challenge from managing the Know Your Customer requirements of participants and setting up of a robust settlement mechanism is not significant,” he said.