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Rukmani Vishwanath

Mumbai , Dec. 26

PRIMARY dealers in government securities are jittery about starting online-trading on the Real Time Gross Settlement System (RTGS) from Monday.

Under RTGS, trading and settlement takes place on-line, which is considered a faster and more transparent mechanism. Banks are already trading on RTGS. But primary dealers are worried that they will face a problem of locking up their securities with the RBI while they avail themselves of finance under its intra-day liquidity facility.

For example, when a dealer borrows funds from the RBI under the intra-day liquidity facility, to meet any shortage of funds, he will have to pledge securities as collateral. But even if the dealer manages to return the money on the same day, he will not get his securities back. The RBI takes a day to release the securities. This creates a shortage of securities for trading purpose.

Currently, primary dealers are pledging a portion of their securities with RBI in repo transactions and in the CBLO market, said a prominent dealer. Suppose a primary dealer finds himself short of funds, he transfers securities to the Intra Day Liquidity (IDL) account with the RBI and avails himself of finance against those securities.

Therefore, those securities are no longer available for trading, he said.

In case the dealer finds that he is in a position to borrow call money and repay the IDL, he needs the securities transferred back into his account as soon as possible, so that they will be available for trading. In the present scenario, an immediate transfer of securities is not possible. This constrains primary dealers, he said.

"The problem is, we cannot put securities in IDL or CBLO from our investment accounts. We can only use the securities that we have in our trading accounts," said a dealer.

To avoid such problems dealers have asked the central bank to allow a T+1 settlement system in the debt market. Discussions in this regard have been ongoing for the past few months.

In fact, RBI had recently enabled the RTGS `Straight Through Processing' (STP) at the bank's end for putting through customer transactions.

Enabling STP would allow banks to directly credit customer accounts without any manual intervention, and would help facilitate the T+1 settlement in respect of stock exchanges, the central bank had said.

Primary dealers also have to wait up to 9:30 p.m. once they go online with the RTGS, to get the settlement data.

The problem, they say, is that the Clearing Corporation of India (CCIL), which is the clearing and settlement agency for government securities market, is not connected to the RTGS live.

"The RTGS and CCIL should talk to each other for a seamless transfer of system and securities. At present this is not the case," said a dealer.

However, most dealers are hopeful, that these glitches will only be teething troubles in an otherwise robust system such as the RTGS. "The system is good and, in the long run, will benefit the entire debt market. It is just that we are worried about how to get by in the immediate future. Maybe the central bank has something in mind and will allow T+1 to happen in a phased manner soon," said a dealer.

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Online trading on RTGS from today — Primary Dealers worried over locking up securities

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