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bullet Introduction
Capital Markets comprise of the Equities Market and the Debt Markets. Debt Markets are markets for the issuance, trading and settlement in fixed income securities of various types and features. Fixed income securities can be issued by almost any legal entity like Central and State Governments, Public Bodies, Statutory corporations, Banks and Institutions and Corporate Bodies.
bullet Introduction to Fixed Income Instruments
Fixed Income securities are one of the most innovative and dynamic instruments evolved in the financial system ever since the inception of money. Based as they are on the concept of interest and time-value of money, Fixed Income securities personify the essence of innovation and transformation, which have fueled the explosive growth of the financial markets over the past few centuries.

Fixed Income securities offer one of the most attractive investment opportunities with regard to safety of investments, adequate liquidity, flexibility in structuring a portfolio, easier monitoring, long term reliability and decent returns. They are an essential component of any portfolio of financial and real assets, whether in form of pure interest bearing bonds, innovative and varied type of debt instruments or asset-backed mortgages and securitized instruments.

bullet Fixed Income Markets - Powering the World
The Fixed Income securities market was the earliest of all the securities markets in the world and has been the forerunner in the emergence of the financial markets as the engine of economic growth across the globe. The Fixed Income Securities Market, also known as the Debt Market or Bond Market, is easily the largest of all the financial markets in the world today. The size of the world Bond markets last year was around US $ 35 trillion, which is nearly equivalent to the total GDP of all the countries in the world. The Debt Markets have therefore a very prominent role to play in the efficient functioning of the world financial system and in catalyzing the economic growth of nations across the globe.
bullet Indian Debt Markets - Pillars of the Indian Economy
The Debt Markets therefore play a very critical role in any modern economy. And more so in the case of developing countries like India which need to employ a large amount of capital and resources for achieving the desired degree of industrial and financial growth. The Indian Debt Markets are today one of the largest in Asia and includes securities issued by the Government (Central & State Governments), public sector undertakings, other government bodies, financial institutions, banks and corporates. The Indian Debt Markets with an outstanding issue size of close to Rs.14640 Billion (or Rs. 14,64,000 Crores) and a secondary market turnover of around Rs 28500 Billion (in the previous year 2005) is the largest of the Indian financial markets.

The Government Securities (G-Secs) market is the oldest and the largest component of the Indian Debt Market in terms of market capitalization, outstanding securities and trading volumes. The outstanding volumes of Government Securities (Central & State) at the end of March 2005 was around Rs. 14610 billion . The G-Secs. market plays a vital role in the Indian economy as it provides the benchmark for determining the level of interest rates in the country through the yields on the government securities which are referred to as the risk-free rate of return in any economy.

bullet Transformations in Market Structure
The Indian Debt Markets are today poised on the threshold of momentous change and transition to an efficient, transparent and vibrant market with significant retail participation. The first half of the twentieth century had witnessed a significant amount of retail interest and participation in the G-Sec market with more than half the holdings of G-Secs issued being held by retail investors, a trend which continued until the early sixties. The administered interest rate regime and the emergence of other equity and debt instruments led to a gradual diminution in the investor interest and participation in the G-Sec market. The Indian Debt Market structure was hitherto that of a wholesale market with participation largely restricted to the Banks, Institutions and the Primary Dealers. The rapidly expanding volumes in the Wholesale Debt Market over the past few years bear the promise of an immense and attractive financial market with a strong potential for retail participation. The Retail Debt Market in India is being created, thanks to the pioneering efforts of the Exchanges and the market participants and the strong leadership and guidance by SEBI, RBI and the Govt. of India.
bullet BSE's Bond with Investors
Bombay Stock Exchange Limited (BSE), the premier stock exchange in the country has heralded the capital market revolution in India and has contributed immensely towards the achievement of global standards of efficiency and safety by the Indian Capitals Markets. The nationwide BSE BOLT Network today, spread across more than 413 cities in the country, represents one of the most formidable and efficient distribution channels for financial securities in the Indian Financial Markets. BSE has always been in the forefront in introducing new and innovative financial products and services suited to the Indian Business Environment during its 130 years of fruitful association with the Indian Investor Community.

BSE, with it's 130 years of association with the Indian investors, has been in the forefront to provide the highest standards of service to the Indian investor Community. The BSE Debt Segment, while reiterating this commitment, promises to provide an integrated trading, clearing and settlement platform for the Fixed Income Markets with information products and services suited to meet all the trading and investment requirements of the market participants.

bullet Wholesale Debt Market Segment (WDS)

The Reserve Bank of India, vide the following circulars

  • DBOD. FSC. BC. No. 39 /24.76.002/2000 dated October 25, 2000
  • IDMC. PDRS. PDS. No PDS-2 /03.64.00/2000-01 dated November 13, 2000
  • DBS. FID No. C 10 / 01.08.00 / 2000-0122 dated November, 2000
permitted the Banks, Primary Dealers and the Financial Institutions in India to undertake transactions in debt instruments among themselves or with non-bank clients through the members of Bombay Stock Exchange Limited (BSE). This notification paved the way for the Exchange to commence trading in Government Securities and other fixed income instruments. The Wholesale Debt Segment of the Exchange commenced its' operations on June 15, 2001.

The membership of the Debt Segment is being granted only to the Existing (equity segment) Members of the Exchange, who possess a minimum net worth of Rs.1.5 crores. There is no security deposit applicable for the membership of the Debt Segment. The annual approval/renewal charges at present is are Rs.25,000/-. (Currently waived)

The Debt Segment offers the market participants in the Wholesale Debt Market an efficient and transparent trading mechanism through it's GILT System. The GILT system is envisaged to become the single point trading platform for all types of Debt securities and instruments. The GILT system will over a period of time provide trading facilities for Central and State Govt. securities, T-Bills, Institutional bonds, PSU bonds, Commercial Paper, Certificates of Deposit, Corporate debt instruments and the new innovative instruments like municipal securities, securitized debt, mortgage loans and STRIPs.

GILT facilitates faster and efficient price dissemination through the Touchline of the Trading System. All relevant information which are of crucial importance in the trading process like the Accrued Interest and Delivery Value are readily available in the system A Yield Calculator is made available both separately and as part of the various order Entry and trade reporting screens.
bullet Trading, Clearing and Settlement in WDS
The major participants in the Wholesale Debt Market like the Banks, Primary Dealers and Institutions are enabled to execute trades through the Members of the WDS of the Exchange through the participant code (Client Code) allocated to each of them, which is one of the key parameters to be entered by the Member in the GILT system while executing the transaction. Trading on the GILT system is currently permitted from 10.00 a.m. to 5.45 p.m. from Monday to Friday and 10.00 a.m. to 2.15 p.m. on Saturday.

The Settlement for the securities traded in the GILT System is on a Trade by Trade DVP basis. The primary responsibility of settling trades concluded in the wholesale segment rests directly with the participants who would settle the trades executed in the GILT system on their behalf through the Subsidiary Ledger Account of the RBI or the CCIL A/c through the NDS. Each transaction is settled individually and netting of transactions is not allowed. The Exchange monitors the Clearing and Settlement process for all the trades executed or reported through the 'GILT' system. The Members need to report the settlement details to the Exchange for all the trades undertaken by them on the GILT system. The settlements for all the trades executed on the GILT system are on a rolling basis. The Exchange permits settlement On T+1 basis for all outright secondary market transactions in Government securities from May 24, 2005. This change came into effect pursuant to RBI Circular RBI/2005/459 IDMD.PDRS./4783/10.02.01/2004-05 dated May 11,2005.

bullet Growth in the WDS
The Debt Segment has shown a gradual but consistent growth in turnover in the past few months with increased participation from the mainstream Banking and Institutional Players. The Wholesale Debt Segment today witnesses active participation today from about 100 Major Banks and Institutions in the Debt Market with Average Daily Turnover of around Rs.50 Crores currently. The Segment expects a sustained rise in turnover and participation in the next few months with the initiation of activity by new Members and the continued support and participation of the major Banks, Primary Dealers and Institutions.
bullet 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, it 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.
bullet Emergence of the Retail Market
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
bullet Retail Trading in G-Secs
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:
  1. 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+2 Delivery Cycle.

  2. 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.

  3. 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.

  4. 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.
bullet BSE - Bonding with the Future
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.
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