Constituent Deals in the Indian Government Securities Market

Abstract

The proactive measures undertaken by Reserve Bank of India (RBI) helped to develop the government securities market and added depth and liquidity. The proprietary deals constitute the largest part of the dealing in Government securities market. Commercial Banks offer constituent services to smaller entities like cooperative banks, corporates, etc. to facilitate their trading activities in Government securities. The constituent deals have almost stagnated as many smaller entities are given permission by RBI to directly deal in the market instead of going through a Bank. RBI has been taking measures to improve direct market access instead of going through intermediaries. The study finds that NDSOM system has helped to reduce price variations in Government securities to a large extent as bond traders can view the market online and take appropriate positions. There is a need to encourage smaller entities co-operative banks, pension funds with Gilt Accounts and currently participating through brokers or Primary Members like commercial banks to avail of the NDSOM to directly manage their positions and also to reduce their transaction costs. There is also a need for Foreign Institutional Investors to be given access to the NDSOM to be able to take advantage of the direct trading in this market.