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With a long-term objective of increasing the volume of participation from all classes of investors, more particularly from retail investors, RBI has introduced the anonymous, screen-based order matching system for trading in government securities.

Reserve Bank of India on August 1, 2005, launched an electronic order matching trading platform for trading government securities on its Negotiated Dealing System (NDS). This marks another major milestone in the history of trading in g-secs. The apex bank, with the long-term intention of developing the government securities market, had introduced NDS in February 2002 with the broad objectives of (i) ushering in an automated electronic reporting and settlement process, (ii) facilitating electronic auctions and (iii) providing a platform for trading in government securities on a negotiated basis as well as through a quote-driven mechanism. The new system aims at injecting further liquidity in the 30-billion-rupee-a-day government bond market. day government bond market. According to RBI, the new platform will begin with supporting dealings in central and state government securities and will be upgraded later to include treasury bills. Through the new system, the central bank aims for better transparency and price discovery in the government securities market and increase retail participation. Also, the new system is expected to remove all hindrances and bring the debt market on par with the equity market.

The new order matching system promises to rectify some of above defects, if not all. The main advantage of this system is that the parties to a transaction are kept anonymous. Sameer Kulkarni, Fund Manager, Franklin Templeton Investments, concurs as he says, “We feel the anonymity of participants is a very important advantage of this system, particularly for the large players, whose presence tends to move the market and increase the impact cost for their trading. There is no market lot concept, which will benefit the small players.” He further adds, however, execution of trades might be difficult around an event or announcement by the regulators. Also, the spread between liquid and illiquid securities might increase as a result of this system, where activity is likely to be in on the run security.

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