NEW DELHI, Aug 24: The finance ministry on Thursday gave permission to the Over the Counter Exchange of India (OTCEI) to trade in government securities.OTCEI will become the second stock exchange, after the National Stock Exchange, to list government securities on its trading bourse.

Finance ministry sources said that the move was expected to provide a sharp boost to OTCEI. "It would motivate the exchange to improve the infrastructure necessary to ensure large-scale trading in government debt instruments," a finance ministry official said.

OTCEI had been pleading with the ministry for a long time for permission to trade in government bonds. But the Reserve Bank of India (RBI) and the Securities Exchange Board of India (SEBI) were initially disinclined to give the go-ahead, apparently because trading in government securities would dilute the mandate with which OTCEI was set up. The exchange was originally supposed to evolve a market for scrips with low capitalisation or for start-up ventures by entrepreneurs.

It was argued that a dichotomy would have crept in if it was allowed to indulge in institutional trading in high value government securities, on the one hand, and shares of low-cap companies, on the other.

But the OTCEI has evolved over the last few years and, increasingly, it is positioning itself as a bourse which should be accessible to trading in larger volumes and from all over the country.

OTCEI's bylaws were amended some time back to allow trading in government securities. With the RBI and SEBI dropping their objections in separate communications to the government, it is only natural that finance ministry gave its final go-ahead last week.

According to bank officials the nod given to the OTCEI will not make much of a difference as far as volumes are concerned. ``The NSE trading has been widely accepted especially by banks who are the major players in government debt,'' said an official at a state-owned banks.

``Trading via NSE or the OTC both are equally transparent but since the market is used to the NSE it will take sometime for the OTC to make a dent,'' said another dealer at a brokerage.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.