A centralised market for retail participants in government securities (G-Secs) who would quote two-way prices, and utilisation of banks as distribution channels and nodal points for interfacing with individual investors are among measures mooted by a Reserve Bank of India (RBI) panel to enhance liquidity in government securities and interest rate derivatives markets.
The Report of Working Group on Enhancing Liquidity in Government Securities & Interest Rate Derivatives Markets has also suggested an electronic swap execution facility (electronic trading platform) for interest rate swap (IRS) market with a central counter-party mechanism for guaranteed settlement through the e-platform. Further, according to RBI Deputy General Manager R R Sinha, the panel has suggested that insurance companies, provident funds and other financially sound entities be permitted to participate in the IRS market.
The working group, comprising market experts, RBI officials and other stakeholders, was according to Sinha, constituted under the chairmanship of RBI Executive Director R Gandhi to explore ways to enhance liquidity in the G-Secs and interest rate derivatives markets.
Besides allocation of specific securities to each primary dealer for market making, the panel among other recommendations, has also called for gradual increase in investment limit for foreign institutional investors in G-Secs while keeping in view the country’s overall external debt position and current account deficit, as also the government’s borrowing programme.
Among other recommendations, the report stresses the need for introducing interest rate futures based on overnight call borrowing rate for futures contracts that have high probability of attracting participant interest.