RBI/2005-06/56
RPCD.CO.RF.BC.15/07.02.03/2005-06
July 13, 2005
All State and District Central
Co-operative Banks
Dear Sir/Madam
Government Securities
Transactions – T+1 Settlement
In the Annual Policy Statement
for the Year 2005-06, announced on April 28, 2005 (extract of para
74 enclosed), it was proposed that the settlement system for transactions
in government securities would be standardised to T+1 basis.
2. Accordingly, a standardised
settlement on T+1 basis of all outright secondary market transactions
in government securities has been made operational from May 24, 2005.
3. In the case of repo transactions
in government securities, however, market participants will have the choice
of settling the first leg on either T+0 basis or T+1 basis, as per their requirements.
4. Please acknowledge receipt to
our concerned Regional Office.
Yours faithfully,
(C.S.Murthy)
Chief General Manager In-Charge
Extract of Annual Policy
Statement for the year 2005-06
74. In terms of the stipulation
of FRBM Act, RBI will not be participating in primary issuance of government
securities with effect from April 1, 2006. In this context, the mid-term Review
of October 2004 emphasised that open market operations (OMO) would become a
more active policy instrument necessitating review of processes and technological
infrastructure consistent with market advancement. In order to address these
emerging needs and equip RBI as well as the market participants appropriately,
a Technical Group on Central Government Securities Market was constituted. Earlier,
another Group (Chairman: Dr.R.H. Patil) had examined the role of primary dealers
(PDs) in the government securities market. The Reports were discussed in TAC
and certain recommendations have been accepted for implementation. Accordingly,
the following measures are proposed:
The number of actively traded securities
need to be enlarged to enhance liquidity and improve pricing in the market.
It is proposed to consolidate debt and build up large liquid securities in consultation
with the Government while continuing the programme of reissuances.
Post-FRBM, RBI will reorient government
debt management operations while simultaneously strengthening monetary operations.
This will entail functional separation between debt management and monetary
operations within RBI. For this purpose, RBI will have discussions with market
players on the modalities and procedures of market operations.
The settlement system for transactions
in government securities will be standardised to T+1 basis.
The Reserve Bank would continue
to resort to multiple and uniform price methods flexibly in the auction of government
securities.
Permitted structures of PD business
will be expanded to include banks which fulfil certain minimum criteria subject
to safeguards and in consultation with banks, PDs and the Government.
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