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Clearing corporation to bring mart alive

BS Banking Bureau

The Union Budget has given the final push to technological and institutional initiatives and lent finishing touches to bring about a modern and functional debt market.

The package announced by finance minister Yashwant Sinha includes setting up of a clearing corporation for the orderly development of the money markets, an electronic negotiated dealing system by June, electronic fund transfer (ETF) and real time gross settlement systems (RTGS) within the next year, replacement of the Public Debt Act by Government Securities Act and removal of taxation anomalies to promote the issuance of STRIPS, zero coupon bonds and deep discount bonds.

These initiatives will lead to the broadening and deepening of the debt market in the country.

"These will enhance the efficiency of the financial sector. It is a big push to the totality of market reforms. The finance minister has addressed the structural issues well. The twin factors -- imparting flexibility in the interest rate structure by cutting the administered rates and deepening the debt market -- will make the financial system efficient," Reserve Bank of India deputy governor Y V Reddy said.

The ball has already been set rolling on the proposed new clearing corporation, which is being set up by the State Bank of India (SBI) with the Industrial Development Bank of India and other financial institutions and banks for the debt and foreign exchange.

The clearing corporation will have to tie up with existing organisations such as the National Securities Depository Ltd or the National Securities Clearing Corporation Ltd to utilise their expertise in the area of clearing.

"Currently the transactions in the wholesale debt market (WDM) are being cleared by the RBI, but once the retail market for government securities becomes vibrant it will be difficult for the apex bank to handle the clearing operations, hence the move to set up a debt clearing corporation," a senior official with a primary dealer said.

Last year, the transactions in the WDM amounted to Rs 4,56,000 crore with the average daily volumes amounting to anywhere between Rs 400 crore and Rs 6,000 crore, depending on the interest rate, money and forex market conditions.

"Once the clearing corporation will start, all the trading and settlement will be done through it which will definitely increase the secondary market transaction," said RV Joshi, managing director, Securities Trading Corporation of India.

Further to facilitate the development of the gilts market, the RBI will be setting up an electronic negotiated dealing system by June 2001 to allow transparent electronic bidding in auctions and dealing in gilts on a real-time basis. The budget document also said that the Public Debt Act to be replaced by the Government Securities Act.

Source: Business Standard

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