Budget 2001: A Primer

Formed on June 30, 1998, Fimmda has, within a short time, grown into aformidable body. And not in the least due to the active support of theReserve Bank of India (RBI). Says Fimmda's chairman, Dr Nachiket Mor: "Aspart of its target of developing fixed income markets, Fimmda is creatingbenchmarks. The valuation methodology for the statutory liquidity ratio(SLR) securities has already been established and initiatives to develop thesame for non-SLR securities are in their final stages. We would now like toencourage market participants to use these benchmarks in a variety of waysincluding marking to market, swap-calculations, index computations and thedevelopment of performance matrices."

Success in a short span of two years include Fimmda being a part of theconvening group for setting up the CCI with an authorised capital of Rs 150crore. The CCI is to act as a central counterparty, and also act as asettlement and clearing house for gilts, forex trades, and money markets.

Recent efforts include the framing up of a draft-set of market conventionsfor overnight index swaps (OIS), draft guidelines on interest rate swaps(IRS) and other initiatives. It also has plans to come up withbond-valuations for the illiquid segment of the market in the next couple ofweeks. Says Fimmda's chief executive officer, B Ratnam: "Market players arevery keen to take membership. The need for a neutral market body is theorder of the hour and Fimmda has spruced up its act to offer neutrality."

Fimmda has been working on developing best market practices and tradingdiscipline. Says Dr Mor: "We are also trying to create best practices in thefixed income markets by learning from those in other international markets."

And none other than the RBI has accorded Fimmda recognition. The RBI, in itslast Monetary & Credit Policy Review in October 2000, asked Fimmda, alongwith PDAI, to come out with a yield curve for valuation of both SLR and SLRstock each quarter. The apex bank also asked Fimmda to prescribestandardised procedures and documentation for commercial paper (CPs) inconsonance with international best practices. Likewise, Fimmda has alsoshown its concern over the operation of the liquidity adjustment facility(LAF). Fimmda has suggested that the LAF become a twice-a-day affair andthat the same be introduced on Saturdays too. Another suggestion was toannounce the auction-result before the recent timing of 12.30 pm. "Fimmdasees a critical role for itself in increasing the skill base of itsparticipants. We are working with NCFM to develop training and certificationmodules for our market participants," says Dr Mor. The body's education &training group is working on setting up a certification programme on bondtrading and swaps.