RBI opens bond mkt doors to more units
Retirement funds, insurance companies and several other institutions will have an easier access to the government bond market. The Reserve Bank of India (RBI) on Friday threw open the trading screen to various market participants.
These entities can now place orders on the screen through banks and bond houses who are direct members of the face order-matching system. Such trades will settle through the demat account that the bond buyers maintain with the bank and the latter’s current account.
Securities Trading Corporation of India COO Pradeep Madhav said the move would give all market participants a real-time online access to the bond market, thereby enabling them to place bids at their preferred rates directly without intervention from brokers.
The entities to benefit are deposit-taking non-bank finance companies (NBFCs), provident funds, pension funds, mutual funds, insurance companies, cooperative banks, regional rural banks (RRBs) and trusts. For years, the bond market was an opaque market where traders cut deals over the telephone. This began to change after July 2005 when the RBI introduced the screen-based trading.
Soon after, that bulk of the trade shifted from the age-old telephonic market to the screen, and several brokers shut shop. An IDBI Capital official said the move would boost trading volumes and ensure greater price discovery. Besides, it would help towards protecting the interest of smaller entities.
The central bank has however, cautioned members that though the system permits putting through trades on behalf of all gilt account holders, it is the responsibility of the respective custodians — the banks and primary dealers — to exercise caution not to permit any trade on account of entities which are not “qualified”.
Banks and PDs have been told to create a mechanism to ensure that participant satisfies all the eligibility criteria before allowing orders to be placed on the screen.