It is abundantly clear that the debt market desperately needs liquidity. Liquidity needs more players with deep pockets. More players, including FIIs and retail investors, need new trading platforms. Finally, the system needs changes in rules and regulations to deepen the market and make it popular.

The finance ministry has already accepted the R.H. Patil committee report which proposes several measures like uniform stamp duty across the country, legislation for removing applicability of tax deduction at source on corporate bonds, reviewing the FII limit in bonds, listing requirements and a market-making mechanism.

There are regulatory issues as well. The government and the regulators involved (RBI and Sebi) should come to a conclusion about the debt trading platform at the earliest. Sebi is all for a single platform and has selected the BSE for the purpose; to prevent a monopoly situation, it should include the NSE as well.

But RBI, is pushing for a separate platform for banks and financial institutions, the largest players in debt, through its NDS (negotiated dealing system). RBI sources say this has to do with ‘risk profile’. “In the NDS the counterparties are invariably banks and therefore risk is low. Non-bank trading has a risk and that’s why it is necessary to separate the two.”

Maybe. But if this was really a great idea, would the turnover ratio (TR) of government bonds have fallen from 202 per cent in 2001 to 71 per cent in 2005? Would the number of bonds with a TR of more than 75 per cent have fallen from 40 in 2003 to 13 in 2005?

... contd.