The Reserve Bank of India is planning to prescribe a framework for authorisation of electronic dealing platforms for financial instruments regulated by it, according to Harun R Khan, Deputy Governor.

Taking into account the experience of NDS-OM (Negotiated Dealing System – Order Matching) and CROMS (Clearcorp Repo Order Matching System) in Government Securities (G-Sec), there is a need to introduce electronic trading dealing platforms for other financial instruments, such as corporate bonds, commercial papers, certificate of deposits and derivative products, Khan said.

Addressing the 17th Annual Conference of FIMMDA-PDAI in London late last week, the Deputy Governor said, “Reserve Bank of India has also been receiving requests from various entities to introduce electronic platforms for these instruments. Accordingly, it is now proposed to prescribe a framework for authorisation of electronic dealing platforms for financial instruments regulated by the Reserve Bank of India.”

He observed that the overarching philosophy behind the framework would be to permit more than one electronic platform subject to eligibility and demand. The transactions on such platforms could be piped to the related settlement agency for post-trade processing.”

NDS-OM is an anonymous electronic platform for trading in government securities. It was created a decade ago. Most trades in G-Secs now get executed on the NDS-OM. Similarly, CROMS is a straight-through processing-enabled electronic anonymous order-matching platform to facilitate dealing in market repos in G-Secs.

Khan said, as part of its vision to provide state-of-the-art infrastructure to market participants, the Reserve Bank has initiated an upgradation of the NDS-OM platform. The new system is expected to have faster throughput, enhanced functionalities, rich user interface and internationally compatible message formats.

He underscored that the NDS has been widely accepted by market participants and its order-matching segment now consistently accounts for 80-85 per cent of total G-Sec market volumes. The average daily volume on the NDS-OM has increased to over ₹40,000 crore in 2015-16 from ₹5,000 crore in 2005-06.

The Deputy Governor said the RBI is also discussing with the government a suitable market-making scheme for illiquid and semi-liquid government securities. “There is, however, work still to be done.”

UDAY bonds

Referring to the private placement of special securities Ujwal Discom Assurance Yojana (UDAY) bonds by some States, Khan said the timing of issuances was planned keeping in view absence of supply at the end of the fiscal year. The issuances were successful and UDAY bonds of about ₹99,000 crore were successfully placed.

“The market behaviour in this case, however, bears scrutiny. The markets exhibited serious negativity, mostly as a response to imaginary stress. There is also evidence of unidirectional bias — that is, the market was unduly pessimistic, (thus) impacting yields. It also brings forth the need for better communication from the issuers. There are lessons to be learnt from the episode,” he explained.

UDAY is a scheme for the financial turnaround of power distribution companies, which was approved by the Centre in November 2015 with the objective of improving the operational and financial efficiency of the State Discoms.

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