The Reserve Bank of India has finally given its approval to launch an anonymous, order-matched, electronic screen-based trading system in government securities on Negotiated Dealing System (NDS). This move is based on the recommendation of the RH Patil Committee, which the central bank set up in May 2004. This system is expected to bring down the role of brokers in debt trading, as the players will be able to trade directly through an electronic system. Some market experts are not satisfied with RBI’s decision since the report of the RH Patil Committee, was not made public. They feel that the matter should have been open to public debate, and that the decision should have been arrived at based on consensus. The ongoing debate on the pros and cons of the new system is thus based on bits of information leaked from various sources. Debt market brokers, who have till now played a crucial role, are feeling threatened.

One has to look at history and the developments in other financial markets to chart out a course for the debt markets. Until recently, the Indian stock market looked more like a casino controlled by brokers. Trading was done through the open outcry system and the markets were not open for foreign portfolio investors. Sustained efforts by the Securities and Exchange Board of India (SEBI) and the financial reforms of the last few years have brought about a sea change in the securities market. The National Stock Exchange (NSE) made its debut in the aftermath of the securities scam of 1992 and ushered in a whole new era in the stock markets. R H Patil, a development banker who later became NSE’s founder chairman and is presently the Clearing Corporation of India Ltd. (CCIL) Chairman, played a significant role in the evolution and development of NSE. NSE brought discipline, transparency and efficiency in the price discovery mechanism and trading. Settlements were also made risk-free and time bound and were guaranteed by the Clearing Corporation. At the other end, C B Bhave, Managing Director of the National Securities Depository Ltd. (NSDL) and a former SEBI official, brought about paperless settlement. The Bombay Stock Exchange (BSE) had to follow NSE’s footsteps and introduce screen-based trading. Technological developments have played a major role in improving the equity markets. Early adoption of new technologies has created an equity market, which is at par with the best in the world.