The Hindu Business Line : New regulations to give fillip to G-Sec market

Mumbai, Dec. 2 The government securities market is set to get a boost with the new regulations in the Government Securities Act, 2006. The Act, which came into force from December 1, will improve liquidity in the G-Sec market.

A press release from the Reserve Bank of India said that the Act would help in deepening and widening of G-Sec market and also help in effective regulation by the RBI.

Some of the provisions of the Act allow for stripping or reconstitution of government securities, facility of pledge or hypothecation or lien of government securities for availing of loan; extension of nomination facility to hold the securities or receive the amount thereof in the event of death of the holder and statutory powers to the RBI to call for information, cause inspection and issue directions in relation to Government securities.

According to a bond dealer, the provisions are on expected lines, as the passing of the Act had been pending for over a year after Parliament approved it.

By allowing stripping or reconstitution of G-Secs, a lot of high premium securities which are not getting traded can now be broken into parts — coupon and principal — and can be traded as zero coupon securities.

“Assuming there is a five-year coupon, it can be stripped into 11 securities. These would be 10 securities of the coupon and one security of the principal amount. This will bring more liquidity into the G-Sec market,” he said.

Avail loans

Investors of G-Sec can now avail themselves of loans against the papers by pledging them with banks, just as share certificates, he added.

However, he said that the government and RBI’s aim of popularising G-Sec with retail investors may not happen because investors would prefer bank fixed deposits to G-Sec.

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