The decision to allow screen-based trading in repos will have a revolutionary impact on the market. Similarly, the move to retail government securities will bring greater liquidity and broadbase the debt markets in line with international practices where the sizes of debt markets are several multiples larger than the equity markets.

The decision to have regular auctions of 182-day T-Bills twice a month would lead to the formation of a yield curve for these instruments. The shorter the maturity period the lower would be the yield and vice-versa. Once there is a yield curve in place, the term money market will receive a boost as a reference rate would be available. The term money rates will follow the yield rates as T-Bills are risk-free instruments.

Outlining a T-Bill auction calendar is a goodmove as this will help the market know how much the RBI will be borrowing and thus the market will adjust its own calendar.

The decision to frame rules and regulations for interest rate swaps is an extremely welcome move as this would create a healthy market for swaps. Globally this market is huge but in the absence of sound rules and regulations it has remained nascent here. This should change as corporates would be able to swap high interest-bearing fixed-rate instruments in their portfolio with short-term instruments where the weighted average of the short-term rate is lower.

The move to ask banks to mark to market 75 per cent of their portfolio is a sound move but the figure should be extended sooner than later to 100 per cent of the portfolio. This will increase the efficiency of treasury management. Today, the portfolio is valued at book price, i.e. the price at which the security was bought. Now if the market value is lower then the treasury manager does not sell the security as it would bereflected as a loss on the books. This leads to inefficiency in treasury management operations. If the portfolio is marked to market then there is no hindrance to a treasury manager reshuffling the portfolio. Today reshuffling of the portfolio is difficult as the portfolio is not valued correctly.

This is the right time to introduce this move as banks will stand to gain on that part of their portfolio which was acquired at high yield rates of 14 per cent, etc. This will offset the loss they would incur owing to the portfolio having been acquired at low yield rates. This will balance out the position of the portfolio and banks should not end up seeing too much of a loss on the valuesof their portfolio.

The cheque writing facility for investors in money market mutual funds will come as a shot in the arm for the industry. The only hitch will be the 15-day lock-in period on these funds. In developed markets investors are given an exit route from day one and that is the reason why mutual funds command such ahuge investor interest as this facility gives them an exit option.

The move to allow FIIs 100 per cent forward cover on additional investments should give a comfort level to FIIs and this could induce fresh investments from them.

As far as the National Stock Exchange is concerned, the move to allow screen-based trading in repos with regard to dematerialised debt instruments is a major boost.

The decision of the RBI to encourage retailing of government securities is a very important development for the government securities market. What could happen now is that the RBI will sell securities to banks which in turn will retail these through brokers who would provide a sell quote through a trading screen. Retail investors would respond to these quotes and pick up government securities. This will lead to a significant increase in the size of the government securities market and lead to its broadbasing.

--as told to Vivek Law