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Friday, Jan 17, 2003

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Gilts market acquires more depth

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NEW DELHI, Jan. 16

RETAIL on-line trading in Government of India (GoI) securities through stock exchanges has become a reality, with the Finance Minister, Mr Jaswant Singh, today making the inaugural purchase of 10 units of 11.10 per cent paper with face value of Rs 100 each, maturing in April.

In the process, a new milestone in the history of the country's capital markets has been achieved, opening up trading in G-Secs - - hitherto confined to only banks and institutional players - - to retail investors, who can place orders for as low as Rs 1,000. So far, the only option for the retail investor was to approach a primary dealer, who would book orders on his behalf through the Negotiated Dealing System of the Reserve Bank of India (RBI). Further, the investor had to commit himself to a minimum amount of Rs 25,000.

But now, the investor can trade in G-Secs in demat form across 10,000-odd terminals of the three designated stock exchanges - - National Stock Exchange, Bombay Stock Exchange and Over the Counter Exchange of India - - on a T+3 (transaction date plus three working days) rolling settlement. These terminals would enable investors in as many as 350 cities to access G-Secs and provide them an alternative avenue for investment in addition to equities, fixed deposits, bonds and various small savings instruments. The settlement cycle would be further shortened to T+2 from April 2003 and subsequently to T+1 from April 2004, along with the shortening of the settlement cycle for equity trading.

The minimum order size, keeping in view the small retail investor, has been pegged at 10 units (each of Rs 100 face value) and multiples thereof. To begin with, all outstanding and newly issued GoI securities will be offered for trading in the "automated, anonymous, order-driven" system.

The RBI will provide the designated exchanges and depositories a list of securities that can be traded. Retail on-line trading in treasury bills, State Government securities and other approved securities will also permitted in a phased manner by the RBI in consultation with the Securities and Exchange Board of India (SEBI).

The Finance Secretary, Dr S. Narayan, said the move would not only bring Government securities to the doorstep of small investors, but also help broaden the market for gilts and reduce time and cost in trade execution by matching orders on a time priority. There will be no tax deduction at source of interest income on G-Secs. Further, individuals will not be taxed at all on interest income of up to Rs 3,000 per year.

To promote purchase and sale of G-Secs through stock exchanges - - similar to that in shares - - RBI has also announced measures for encouraging institutional investors to shift to the new system. These include facilities for value-free transfer of gilts from their existing SGL/CSGL accounts with RBI to the demat accounts with depositories. Institutional players - - banks, PDs, insurance companies, mutual funds, etc - - have also been allowed to reckon G-Secs held in demat accounts with depository participants for statutory liquidity requirement purposes. Further, they are to be exempted from margin requirement as in the case of equities.

Apart from G-Secs, on-line trading of corporate debt paper through the stock exchange also took off today, with the SEBI Chairman, Mr G.N. Bajpai, putting through a transaction of ICICI Bank's bonds.

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