The Reserve Bank of India , placed on its website, the report of the Working Group on Enhancing Liquidity in Government Securities and Interest Rate Derivatives markets. The Group has made various recommendations, which have been categorised into essential recommendations, desirable recommendations and operational recommendations. Some of the important recommendations made by the Group are:
(a) Government Securities Market
Consolidation of outstanding Government securities, based on model plan indicated in the report;
Allocation of specific securities to each Primary Dealer for market making in them;
Gradual increase in the investment limit for Foreign Institutional Investors in Government securities keeping in view the country’s overall external debt position, current account deficit, size of Government’s borrowing programme, etc.;
A roadmap to gradually bring down the upper-limit on the Held-to-Maturity portfolio in a calibrated manner to make it non-disruptive to the entities and other stakeholders may be prepared; and
Promotion of the term-repo market with suitable restrictions on ‘leverage’ and introduction of tripartite repo in Government securities.
(b) Retail Participation
Services of banks (and post offices if possible at a later stage and in consultation with Government of India) may be utilised as a distribution channel and nodal point for interface with individual investors; and
A centralised market maker for retail participants in Government securities in the long-term who would quote two-way prices of Government securities for retail/individual investors may be considered.
(c) Interest Rate Derivatives Market
An electronic swap execution facility (electronic trading platform) for the Interest Rate Swap (IRS) market may be introduced with a Central Counter Party mechanism for guaranteed settlement through the electronic platform;
Insurance companies, Provident Funds and other financially sound entities be permitted to participate in IRS market;
Futures contracts that have high probability of attracting participant interest, such as Interest Rate Futures (IRF) based on overnight call borrowing rate to be introduced; and
Cash-settled 10-year IRF subject to appropriate regulations like restricted participation, entity-based open position limit, price band, etc., to be introduced.
The Reserve Bank would examine and initiate appropriate action on the recommendations made by the Working Group.