PRESENTATION ON

GOVT.
SECURITIES
MARKET IN INDIA
 ABOUT INDIAN FINANCIAL SYSTEM

A Financial Market is the market in which financial

assets are created or transferred. A financial transaction
involves creation or transfer of a financial asset.
Financial Assets or Financial Instruments represents a
claim to the payment of a sum of money sometime in the
future and /or periodic payment in the form of interest or
dividend.
 WHAT IS A SECURITY MARKET?

Securities Markets is a place where buyers and sellers of

securities can enter into transactions to purchase and sell
shares, bonds, debentures etc.
Transfer of resources from those having idle resources
(investors) to others who have a need for them (corporate)
is most efficiently achieved through the securities market.
 STRUCTURE OF THE SECURITIES MARKET

Securities
Market

Equity Debt Derivatives

Market Market Market

Government Corporate
Securities Debt Money Options Futures
Market Market Market Market Market
 ABOUT PRIMARY MARKET
The primary market is that part of the capital markets that
deals with the issue of new securities. Companies,
governments or public sector institutions can obtain funds
through the sale of a new stock or bond issue. The process
of selling new issues to investors is called underwriting. In
the case of a new stock issue, this sale is an initial public
offering (IPO). Dealers earn a commission that is built into
the price of the security offering, though it can be found in
the prospectus.
 WHAT IS GOVT SECURITY
MARKET?
• A market where by Govt or gilt edged securities can
be bought or sold is called ‘Govt. Security Market’

• Govt securities are issued for the purpose of

refunding the maturity securities, for advance
refunding of securities, which have not yet matured,
and for cash financing, i.e., raising fresh cash
resources.
 GOVERNMENT SECURITIES
MARKET

Introduction of auction-based price determination.

Development of the RBI’s yield curve for marking to market the G secs
portfolios of the banks.

Introduction of the system of primary dealers.

Creation of wholesale debt market segment on the national stock

exchange, the first formal mechanism for the trading of G-secs.

Introduction of DVP (delivery versus payment) for settlement.

Increase in the number of players in the G-secs market with the facility
for non-competitive bidding in auctions.
 FEATURES
• Agencies
• RBI’s special role
• Nature of securities
• Liquidity profile
• Tax rebate
• Markets
• Forms
• participants
TYPE OF TRADING

M IN
GROO
G

SWITCHING

AUCTIONING
 SECURITY
WITH FIXED
COUPON
RATE

TYPES OF
FLOATING
RATE
GOVT ZERO
COUPON
COUPON SECURITY BONDS

BONDS
CAPITAL
INDEX
BONDS
 IDEAL
FINANCING

IMPORTANTS
SOURCE OF OF GOVT GUARANTEED
LIQUIDITY SECURITY RETURN
MARKET

PROFITABLE
AVENUE
GOVERNMENT SECURITIES MARKET
 Establishments of gilt-oriented mutual funds.
 Re-emergence of repos as an instrument of short-term
liquidity management.
 Phenomenal growth in the volume of secondary market
transactions in G-secs.
 Emergence of self-regulating bodies such as the
PRIMARY DEALERS ASSOCIATION OF INDIA
(PDAI) and FIXED INCOME AND MONEY MARKET
DEALERS ASSOCIATION (FIMMDA).
PRIMARY MARKET FOR
GOVERNMENT SECURITIES

· The issue of G-secs or Treasury securities is done

by the Reserve Bank of India (RBI) which serves
as the merchant banker to the central and state
governments.
· The RBI announces the auction of G-secs
through a press notification and invites bids from
prospective investors.
 TREASURY AUCTIONS
• (Discriminatory price
FRENCH auction), successful bidders
pay the actual price (yield)
AUCTION they bid for.

• In a Dutch auction
DUTCH successful bidders pay a
uniform price which is
AUCTION usually the cut off price
(yield).
PARTICIPANTS IN THE G-SECS MARKET

• Banks are the largest holders of G-secs. Other

investors are insurance companies, provident
funds, mutual funds, trusts, primary and satellite
dealers.
• Primary dealers are important intermediaries in the
G-secs market. They serve as underwriters in the
primary market, act as market makers in the
secondary market, and enable investors to access
the SGL account.
Contd……
• (SGL) account to large banks and financial
institutions so that they can hold their investment in
G-secs and treasury bills in the electronic book entry
form. These institutions can settle their trades in
securities through DVP (delivery versus payment)
mechanism.
SECONDARY MARKET FOR G-
SECS
 As soon as they are issued G-secs are deemed to be listed
and eligible for trading.
 The NSE has a wholesale Debt Market (WDM) for high
value debt transactions.
 Two kinds of trades occur on the WDM : Repo trades
and Non-repos trades.
 Despite the WDM, the wholesale market in G-secs is by
and large a telephone market. After a deal is done, it is
reported on the Negotiated Dealing System (NDS) of NSE
 TREASURY BILL MARKET

Treasury bills are short-term debt instruments of the

central government.
Treasury bills are sold through an auction process
according to a calendar announced by RBI
Treasury bills are issued at a discount and redeemed at par.
Most buyers of treasury bills hold them till maturity and
hence the secondary market activity is limited
THANK YOU