Retail Debt Segment (REDS)

The Retail Debt Markets in the new millennium, presents a vast kaleidoscope of opportunities for the Indian investor whose knowledge and participation hitherto has been restricted to the Equities markets in India.

The development of the Retail Debt Market has engaged the attention of the policy makers, regulators and the Government in the past few years. The potential of the Retail Debt Markets can be gauged from the investor strength of more than 40 million in the Indian Equities market who have powered the tremendous growth and transformation of the stock markets in recent times. Recognizing this opportunity at a very early date, BSE has been consistently in the forefront of the campaign for the creation of a Retail Debt Market and has consistently expounded the potential and need for the retail trading in G-Secs in the past few years in various important forums and to the key regulatory authorities.

It would be surprising to know that a retail debt market was at one point of time very much present in India. Right through the forties and the fifties and until the early sixties, a good proportion of the holdings of Govt. securities were concentrated with individual investors. Available statistics indicate that more than half of the holdings in Govt. securities was concentrated with retail investors in the early 50s.

Today, there exists an inherent need for households to diversify their investment portfolio so as to include various debt instruments and especially Government securities. The growing investments in the Bond Funds and the Money Market Mutual Funds are a sign of the increasing recognition of this fact by the retail investors.

Retail investors would have a natural preference for fixed income returns and especially so in the current situation of increasing volatility in the financial markets. The Central Government Securities (G-Secs) are the one of the best investment options for an individual investor today in the financial markets due to the following factors:

• Zero Default Risk: due to their sovereign guarantee, ensures the total safety of all investments in G-Secs.

• Lower average volatility in bond prices

• Greater returns as compared to the conventional safe investment avenues like Bank Deposits and Fixed Deposits, which also contain credit risk

• Higher Leverage: Greater borrowing capacity against G-Secs due to their zero risk status.

• Wider range of innovations in the nature of securities like TBills, Index linked Bonds, Partly Paid Bonds and others like STRIPS and Securities with call and put options to follow soon.

• Better and greater features to suit a large range of investment profiles and investor requirements.

• Growing Liquidity and the increased turnover in recent times in the Indian Debt Markets

The Government of India and RBI, recognizing the need for retail participation had recently announced a scheme for enabling retail participation through a non-competitive bidding facility in the G-Sec auctions with a reservation of 5% of the issue amount for non-competitive bids by retail investors.

The Retail Trading in G-Secs. commenced on January 16, 2003 in accordance with the SEBI Circular bearing ref. no. SMD/Policy/GSEC/776/2003 dated 10th January 2003. The Indian Fixed Income Markets, which until some time ago was the mainstay of the wholesale investors were made accessible to the Retail Indian Investors, thanks to some path-breaking initiatives by the Government of India - Ministry of Finance, the RBI and SEBI to enable retail trading in G-Secs through the Stock Exchanges. BSE has, for long, been an ardent advocate of the need to enable the participation of the 28 Million Indian investor multitude in the Indian Fixed Income Markets. The Indian Investor is today able to buy or sell G-Secs through the nationwide BSE BOLT Network of more than 7000 Terminals spread across 410 cities around the country.

The Retail Debt Market Module aims at providing an efficient and reliable trading system for all debt instruments and securities of different types and maturities. The key features of the system are: Trading: by electronic order matching based on price-time priority through the BOLT (BSE OnLine Trading) System with the continuous trading sessions from 9.55 a.m. to 3.30 p.m as is operational in the Equities Segment. Retail Trading in G-secs would be on a Rolling Settlements basis with a T+3 Delivery Cycle.

Clearing and Settlement: The Clearing and Settlement mechanism for the Retail trading in G-Secs is based on the existing institutional mechanism available at the Stock Exchanges. The trades executed throughout the continuous trading sessions will be netted out at the end of the trading hours through a process of multilateral netting. The transactions will be netted out member-wise and then scrip-wise so as to determine the net settlement and payment obligations of the members.

The Delivery obligations and the payment orders in respect of these members are generated by the Clearing and Settlement system of the Exchange. These statements indicate the pay-in and pay-out positions of the members for securities and funds who would then give the necessary instructions to their Clearing Banks and depositories.

The entire risk management and the clearing and settlement activities for the trades executed in the Retail Debt Market System will be undertaken by the Exchange Clearing House.

Holding and Transfer of G-Secs: The G-secs for retail trading through Stock Exchanges can be held by investors in the Same Demat A/c (same as the Constituent SGL A/c which can be held with Banks or PDs) as is used for equities at the Depositories. NSDL and CDSL will hold the combined quantity of G-Secs in their SGL-II A/cs of RBI, meant only for client holdings

The BSE Debt Market solution would also provide live Internet trading on its state of the art BSEWebx Trading System which will offer among others a number of quintessential features and facilities, critical for the investor in the fixed Income markets. The BSE Debt Market solution would seek to provide in the course of time an integrated trading and settlement platform for the entire variety of debt securities and instruments, which are bound to expand in an enormous way in terms of variety and numbers in the near future.

BSE, in keeping with the dramatic strides in the expansion of the Indian Debt Market, is all set to offer our investors an enlightening and satisfying investment and trading experience which will truly unleash the magic and potential of the Bond Markets for the Indian Investors.

The BSE Debt segment would seek to pave the way for the development of an healthy, efficient and active debt market mechanism and market structure in line with world class standards and greater integration with the global economy. The BSE vision for the Indian Debt Market foresees the markets growing in leaps and bounds in the near future, soon attaining global standards of safety, efficiency and transparency. This will truly help the Indian capital markets to attain a place of pride among the leading capital markets of the world.