Introduction
The development of the Retail Debt Market has engaged the attention of policy makers, regulators and the Government in the past few years. The potential of the Retail Debt Market can be gauged from the investor strength of more than 40 million in the Indian equity market who have powered the tremendous growth and transformation of the stock markets in recent times. Recognizing this opportunity at a very early stage, BSE has consistently been in the forefront of the campaign for the creation of a Retail Debt Market and has expounded the potential and need for the retail trading in G-Secs in the past few years in various important forums and to the key regulatory authorities.
Emergence of the Retail Debt Market
It would surprise many to know that a retail debt market was at one point of time very much present in India. Right through the forties and the fifties and until the early sixties, a good proportion of the holdings of Government securities were concentrated with individual investors; available statistics indicate that more than half of the holdings in Government securities were concentrated with retail investors in the early 50s.Today, there exists an inherent need for households to diversify their investment portfolio so as to include various debt instruments, including Government securities. Retail investors would have a natural preference for fixed income returns and especially so in the current situation of increasing volatility in the financial markets. The Government Securities (G-Secs) are the one of the best investment options for an individual investor today in the financial markets due to the following factors:
- Zero default risk - due to their sovereign guarantee, ensures the total safety of all investments in G-Secs
- Lower average volatility in bond prices
- Greater returns as compared to the conventional safe investment avenues like Bank Deposits and Fixed Deposits, which also contain credit risk
- Higher leverage -Greater borrowing capacity against G-Secs due to their zero risk status
- Better and greater features to suit a large range of investment profiles and investor requirements
- Growing liquidity and the increased turnover in recent times in the Indian Debt Markets
Trading and Settlement
The Retail Trading in G-Secs Commenced on January 16, 2003 in accordance with the SEBI Circular bearing ref. no. SMD/Policy/GSEC/776/2003 dated January 10, 2003. The Indian Fixed Income Markets, which until some time ago was the mainstay of the wholesale investors, were made accessible to the retail investors, thanks to some path-breaking initiatives by the Government of India - Ministry of Finance, RBI and SEBI to enable retail trading in G-Secs through stock exchanges. BSE has, for long, been an ardent advocate of the need to enable the participation of the 28 million Indian investor multitudes in the Indian Fixed Income Markets. The Indian Investor is today able to buy or sell G-Secs through more than 800 active BSE members spread across 44 cities around the country.
The Retail Debt Market Module of BSE aims at providing an efficient and reliable trading system for Gsec. The key features of the system are:
- Trading: by electronic order matching based on price-time priority through the BOLT (BSE OnLine Trading) System with the continuous trading sessions from 9.15 a.m. to 3.30 p.m as is operational in the Equities Segment. Retail Trading in G-secs is on a Rolling Settlements basis with a T+2 Delivery Cycle.
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Clearing and Settlement: The Clearing and Settlement mechanism for the Retail trading in G-Secs is based on the existing institutional mechanism available at BSE. The trades executed throughout the continuous trading sessions are netted out at the end of the trading hours through a process of multilateral netting. The transactions are netted out member-wise and then security-wise so as to determine the net settlement and payment obligations of the members.
The Delivery obligations and the payment orders in respect of these members are generated by the Clearing and Settlement system of BSE. These statements indicate the pay-in and pay-out positions of the Members for securities and funds who then give the necessary instructions to their Clearing Banks and depositories.
The entire risk management and the clearing and settlement activities for the trades executed in the Retail Debt Market System are undertaken by BSE Exchange Clearing House. - Holding and Transfer of G-Secs: The G-secs for retail trading through BSE can be held by investors in the same Demat account as is used for equity at the Depositories. NSDL and CDSL hold the combined quantity of G-Secs in their SGL-II A/cs of RBI, meant only for client holdings.
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