Panel opens window for brokers in debt

Fixed-income brokers may heave a sigh of relief as their exclusion from the debt market seems to have been partially solved.

The Reserve Bank of India-constituted technical advisory committee for government securities is understood to have put a ceiling of Rs 25 crore for deals to be mandatorily done through negotiated dealing system (NDS). Deals over and above Rs 25 crore could be brokered by intermediaries.

Retail trades could be done through brokers and there are no mandatory limits for this segment. Retail segment in gilts market constitute provident funds, trusts, mutual funds among others. The test trading sessions on NDS have been completed successfully and banks are positive about the renovated platform.

"It is very user friendly," said an executive with a bank, which is one of the participant in the NDS test dealing system.

"Though the NDS was supposed to be launched in September, we do not want to rush through till the process is not put in place properly and all technical hitches are cleared," he added.

Meanwhile, sources added that any new private participant offering trading platform will be difficult to get through. This is because private parties want permission for trading and settlement connectivity.

However, all RBI transactions are exclusively settled through Clearing Corporation of India Ltd (CCIL). Connectivity with CCIL is not allowed to private parties, banking sources said.

On the other hand, trading platform without settlement facility is not very useful. Brokers, however, said not many deals over Rs 25 crore take place.

Policy observers feel that brokers need not feel antagonistic about the screen-based platform as they never used the National Stock Exchange (NSE)-promoted wholesale debt segment. This platform is used only for reporting deals.

The NDS, managed by the central bank, will at least ensure transparency of deals with proper price discovery and quotes and at the same time it will keep the identities of parties involved in the deal discreet.

The present arrangement "" dealing through telephone "" is not anonymous and, hence, banks or brokers can frontrun once they know if there is a bid order placed by public sector banks or big buying orders in a particular government stock.

Front running happens when a player takes a position in a particular government stock before it is actually bought and then sells it once the prices of the stock go up after the order is placed.