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Our Bureau

Mumbai , May 3

The Reserve Bank of India has issued guidelines on trading in government securities on `When Issued' (WI) basis by select participants.

`When Issued', a short form of `when as and if issued', indicates a conditional transaction in a security authorised for issuance but not as yet actually issued. All `When Issued' transactions are on an `if' basis, to be settled if and when the actual security is issued.

In other words, primary dealers will be able to trade in government securities before they are actually issued.

According to the RBI, `When Issued' market has two basic advantages: It facilitates the distribution process for government securities by stretching the actual distribution period for each issue and allowing the market more time to absorb large issues without disruption. It also facilitates price discovery process by reducing uncertainties surrounding auctions.

To start with, `When Issued' trades will be permitted in the case of reissued securities alone. Only primary dealers will be allowed to take short positions in these securities, and every When Issued' transaction will require at least one primary dealer as counter party. Participants will be able to undertake When Issued' positions within prescribed limits. Prescribed limits on these positions are: primary dealer: 10 per cent (long or short positions), non-primary dealers: 5 per cent (long positions).

Internal control and reporting requirements have been prescribed for effective control and regulation of the `When Issued' market. Actual trading on `When Issued' basis will commence from a date to be indicated by the RBI, after necessary infrastructure is in place, the RBI said.

More Stories on : RBI & Other Central Banks | Govt Bonds

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