MUMBAI: The Reserve Bank of India (RBI) has taken meaningful steps to rope in retail investors in the trading of foreign currency and state development bonds (SDLs).
RBI believes that illiquidity in SDL market impedes to an extent the participation of foreign portfolio investors (FPIs) in SDL trading, and this has restrained the trading in this segment by FPIs at 8 per cent or 9 per cent allowed for that segment.
It has been the endeavour of the Reserve Bank to increase retail participation in the government security market. In addition to scheduled commercial banks and primary dealers, it has been decided to also allow the Specified Stock Exchanges approved by SEBI to act as Aggregators/Facilitators to aggregate the bids of their stockbrokers/other retail participants.
These stock exchanges in turn can submit a single consolidated bid under the non-competitive segment of the primary auctions of State Development Loans (SDLs). RBI said the measure will be implemented in consultation with the respective state governments.
Likewise, the measures to encourage retail participation in forex trading have also advanced. In October 2017, the Reserve Bank had proposed the setting up of a foreign exchange trading platform for retail participants that would provide customers with access to an electronic trading platform through an internet-based application, where they can purchase/sell foreign currency at market clearing prices.
“The forex trading platform has now been developed by the Clearing Corporation of India (CCIL) and is being tested by users. The platform will be available to users for transactions from early August 2019. Operational guidelines for the platform will be issued by the end of June 2019,” the RBI Governor Shaktikanta Das (seen in the picture) informed.
Briefing the press on the growth challenges faced by SDLs markets, the deputy governor of RBI, Dr Viral V Acharya said that biggest hurdle before the SDL market is the liquidity risk and not credit risk as these bonds are guaranteed by the government.
Broadening the market by allowing the participation of specified stock exchanges in the aggregation of bids in SDLs could to a great extent improve liquidity in SDLs and this is likely to attract FPI investments to a good extent.