The Hindu Business Line : To improve liquidity in debt market — Banks, insurers seek multiple trading platforms

`Multiple systems offer greater liquidity and could help contain sudden spikes in yields. Besides being the international practice, the mechanism would offer greater transparency and be superior to the NDS where only concluded deals are reported.'

Bangalore , Oct. 15

BANKS and insurers have sought multiple trading platforms linked to the Clearing Corporation of India (CCIL) for improving the liquidity in the debt markets.

Top bankers said that none of them had any complaints against the CCIL system. CCIL has partly operationalised its Negotiated Dealing System (NDS), though trading volumes still continue to be low.

Bankers said that some of the transparency issues would be partially addressed by the CCIL electronic matching system.

But theys have sought the co-existence for voice matching or alternatively multiple electronic platforms, as already available globally. The multiple platforms were sought to address some of the small volumes.

Besides, bankers said that multiple systems offered greater liquidity and would help contain some of the sudden spikes in yields as witnessed during the last few days. Moreover, they said, offering multiple systems was the international practice. In fact, this is the mechanism most banks want since it offered greater transparency and was far more superior to the NDS where only concluded deals were reported.

Moreover, insurers, both life and non-life, have major reservations against the CCIL-operated system. Insurers, despite being large counterparties in the debt markets, are peeved that the CCIL does not include them. Insurers say that realised yields were at least 25 basis points lower than banks due to high transaction and settlement costs.

The high costs are partly because non-bank entities are not allowed to maintain SGL (Subsidiary General Ledger) accounts, a facility provided by RBI to large banks and financial institutions to hold their investments in Government securities and Treasury bills in the electronic book-entry form.

Non-bank entities, including insurers on the other hand, would have to opt for the DVP (Delivery versus Payment) mechanism and accordingly operated through constituent SGL accounts (CSGL).

A spokesperson for MetLife Insurance said, "We also need to be allowed for direct electronic settlement and be allowed to open SGL account instead of CSGL accounts. The lower realised yields for insurers were also due to large broking houses acting as counterparties.

Institutional brokerages seldom act as counter parties and function only for deal matching.

In fact, some of the international broking houses are already preparing to bring their electronic deal matching platforms into the country.

Among the applicants is ICap India Private Ltd, subsidiary of the world's largest inter dealer broker.

ICap has made two applications to the RBI for providing electronic inter dealer broking services in the debt and in the derivatives segment linked to the NDS.

Mr Manish Sabharwal, Vice-Chairman of ICap India said, "We have asked for permission to link with the CCIL's settlement infrastructure just as we do in the US and UK."

The issue, bankers said, involved multiple brokerages to operate to ensure a level-playing field. "Global experience showed that electronic monopolies that replaced broker oligopolies increase volatility and reduce liquidity. This was what happened in Europe recently.