Government Securities

Market

Introduction
It deals with tradable debt instruments
issued by the government for meeting its
financing requirements. Primary market
helps manager to raise debt from public
resources and Secondary market helps in
the effective operation of monetary policy
through application of indirect instruments
such as open market operations.

Trading in Government
Securities
Trading government securities is referred
to as the gilt-edge market. Mostly over the
counter market and trading is confined to
banks, financial institutions and PFs.
Broker is intermediate between the above
institutions through their contacts within
the money managers in the banks.

Trading in Government
Securities
Major borrowers are Central and State
governments, local and municipal agencies
and semi-government agencies.
Government securities are held by the RBI,
and the working two major techniques
Open market operations and SLR.

Role of the Government Securities

Market
First, It may adversely affect private
investment by directly competing for the
limited resources. Secondly, the government
securities market can also have a positive
influence on private investment by enabling
the development of private bond market by
putting in place a basic financial
infrastructure. Third, It offers a risk free
benchmark.

 Fourth, for the central bank, a developed

government securities market allows greater
application of indirect market-based
instruments such as open market operations.
Fifth, Central banks take a keen interest in
developing strong government securities
market because of monetary policy.

Features of Govt. Securities

Central Govt. securities is more liquid and than state.
Stock certificates are safer because it is registered in
the book of the Public Debt Office. But it is not easily
transferable. Promissory Note is easily transferable. It is
Issued through Public Debt Office of the RBI. The RBI
does have its approved brokers for marketing of G-Sec.
It is an over-the counter market and sale and
purchase has to be separately negotiated. Normal
maturity is ten-years or less than this. It can list on
Stock exchanges. Interest on government securities is
subject to tax deducted at source.

 The Role of the Reserve Bank It introduced the auction

system for issuance of government securities. Retail
participation has been promoted in the primary market
as well as in the secondary market. In an effort to
increase liquidity, RBI pursued a strategy of passive
consolidation of debt by raising progressively higher
share of market borrowings through re-issuances.
Bearer Bonds: A bearer bonds certifies that the bearer
is entitled to a certain sum specified in rupees on the
date indicated in accordance with the terms of a
particular loan to which the bond relates.

 Forms of Government Securities Stock

Certificate: It held in the form of Stock, and
owner get a certificate to the stock. It is not
easily transferable. It can be held jointly by more
than one person but these will have to be
transferred by all surviving joint holders.
Promissory Note: This is a promise by the Govt.,
central/state, to a person named therein, to pay
a fixed amount at a specified date and to pay
interest at a fixed rate periodical intervals at a
particular office of the RBI.

Reforms in G-sec Market

New auction-based instruments were introduced with varying
maturities such as 364-day, 182-day, 91-day and 14-day treasury
bills. In the long-term segment, Floating Rate Bonds (FRBs)
benchmarked to the 364-day T-bills and 10-year loan with
embedded call and put options exercisable on or after 5-years
from the date of issue were introduced. A system of Primary
Dealers (PDs) was made operational in March 1996.
Foreign Institutional Investors were allowed to set up 100% debt
funds to invest in G- Securities. The delivery Vs Payment System
( DvP ) were introduced in 1995 for the settlement of transactions
in G- Secs . Since timely flow of information is a critical factor in
evolving the efficient price discovery mechanism, improvements
were brought in transparency of operations and data
dissemination. Retail trading in G- Secs at selected stock
exchanges commenced in January, 20

Conclusion
The Government securities market in
India has evolved and gained
importance over the years. The
weighted-average cost of market
borrowing declined consistently.