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RBI plans to launch T+1 settlement from July

BS Banking Bureau

The Reserve Bank of India plans to move to t+1 settlement mode for settling transactions in the government security market under the electronic negotiated dealing system. Currently, the market participants can settle their deals on the same day or the next.

The t+1 settlement, which will be up and running in phases beginning in July, envisages settlement of a transaction on the next working day after confirmation of a buy-sell deal. The t+1 settlement is aimed at minimising the pre-settlement risk.

Speaking at a seminar on debt markets, organised by Business Asia Consulting and Fixed Income Money Market and Derivatives Association of India, Usha Thorat, chief general manger, internal debt management cell, RBI said: "The RBI is not trying to push the pace of the debt market and is taking into account all factors affecting its functioning before ushering in changes and bringing in advancements."

She pointed out that there was a fairly substantial primary issue of government papers and this curtailed the growth of secondary market. With fiscal consolidation the secondary market would also grow.

Speaking on the sidelines of the seminar, A P Gaur, director, IDM Cell, RBI, said the separate trading of registered interest and principal of securities can be introduced in the country only if there were enough trading volumes.

Strips allows investors to hold and trade the individual interest and principal components of eligible Treasury Bills and bonds as separate securities.

For example a primary issue of government security for raising Rs 20 billion may require a trading volume of about Rs 200 billion for Strips to be successful in the market, he explained.

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