WHITE PAPER DEVELOPMENT OF SECONDARY DEBT

MARKETS IN INDIA

I C A P ( I N D I A ) P V T . L T D .2 0 2 , D A L A M A L T O W E R S , N A R I M A N P O I N T

M U M B A I 4 0 0 0 2 1 I N D I A

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TABLE OF CONTENTS

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1. Need for Debt Markets 3 - 4

2. Debt Market in India 5 - 6

3. Regulators 7

4. Market Infrastructure : Trading 8 - 9

5. Intermediary : Broker 10 - 11

6. Summary of Fixed Income Markets in Other Countries 12 - 25

7. Electronic Trading Systems 26 – 27

8. Inter-Dealer Broker 28 - 29

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N E E D F O R D E B T M A R K E T S

In any economy, the financial sector plays a major role in the mobilization and allocation of savings. Financial institution, instrument, and markets which constitute the financial sector act as a conduit for the transfer of financial resources from net savers to net borrowers. World over all the governments face deficits, in India the case is more acute thus the Central Government indulges in borrowing through issuances of sovereign securities by its merchant banker (RBI) every year as a part of funding programme as envisaged in the Annual Union Budget. In recent years government borrowing has increased making it the major borrower. Average annual budgeted borrowings of Central Government have been 140,000 crores. The underlying philosophy of government in raising the Funds from the Debt market is to finance the development activities of government. Furthermore; these markets also bring about transmission channel for use of indirect instrument of monetary control. Some other reasons that has resulted the emergence of debt market are:

Governments may borrow to meet temporary needs, as when estimated revenue

falls below or is exceeded by estimated expenditures. Short-term treasury notes, payable by increased taxes or by greater economizing,

may be issued. Borrowing to finance public works thereby reducing “forex” exposure from

cross-border financing. To finance emergencies such as war, famine, floods etc. Government borrowing interest rates are determined by the market participants

based on their assessment of the current economic situation. These interest rates serve as benchmarks for pricing of corporate paper and other saving instruments.

They also infuse greater transparency in the process of credit allocation in view of the information that is contained in market determined rates. It may be difficult for Government to intervene through debt market for directed subsidized lending as compared with the banking system. Hence, it is claimed that debt markets facilitate the reduction of bad loans.

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D E B T M A R K E T I N I N D I A

The debt market in India comprises of two main segments viz., the Government Securities Market and the Corporate Securities Market, besides the emerging market for interest rate derivatives. The government securities market is a core constituent of the Indian financial system. Since 1991, a number of measures have been taken by the RBI for widening and deepening the market. With the switch in 1992 to borrowings by the government at market-related interest rates through an auction system, and the abolition of the system of automatic monetization, it became possible to progress towards greater market orientation in government securities. Depth, Liquidity and Transparency were added to the market by reforms such as;

Introducing new instruments across the maturity spectrum (zero coupon bonds, floating rate bonds, capital-indexed bonds, bonds with call and put options),

Establishing a system of delivery versus payment (DvP), the introduction of primary dealers with liquidity support and incentives for underwriting,

Authorizing foreign institutional investors to invest in dated securities and T-bills in both the primary and secondary markets,

Clearing Corporation of India Ltd (CCIL) commencing operations,

Introducing a Negotiated Dealing System (NDS), and

The dissemination of online market information.

Government Securities form the major part of the market in terms of outstanding

issues, market capitalization and trading value. The outstanding volume in marketable securities (of Central as well as State Government) is estimated at around Rs. 641, 2121 crore at the end of March 2003.

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As the markets have grown with reforms so have the investor base, this has lead to greater market depth. But, clearly a lot still has to be done to make this market more vibrant as any other developed market and focus on development of intermediaries is of utmost important. The diagram below clearly depicts all the important aspects of Indian debt markets.

OVERVIEW OF INDIAN DEBT MARKET

Regulator SCRA MoF RBI SEBI NSE

Issuers GoI State Govts DFIs PSUs Banks Corporates

Intermediaries Broker

Market Infrastructure NSE BSE NDS (RBI) OTCEI CCIL NCCIL, CDSL

Counterparties Banks PDs FIs Insurance Co.’s PFs, MFs Corporates FIIs

Instruments Gilts CDs, CPs Repos Bonds Debentures

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R E G U L A T O R S

Financial markets and securities transactions are regulated by the Department of Economic Affairs (DEA) that comes directly under Ministry of Finance (MoF). The Indian Financial system is regulated and supervised by two government agencies under the Ministry of Finance (MoF) – The Reserve Bank of India and The Securities Exchange Board of India. Securities Contract Regulation Act (SCRA) of 1956 provides for direct and indirect control of virtually all aspects of securities trading and the running of stock exchanges and aims to prevent undesirable transactions in securities. Most of the powers under the SCRA are exercisable by DEA while a few others by SEBI.

The Reserve Bank of India is the main regulator of the Debt Market and its main participants, the Banks. Apart form its role as a regulator; it has to simultaneously fulfil several other important objectives viz. managing borrowing program of Government of India, control inflation etc. It regulates Banks through its control on issuances of new banking licenses and their (banks) development of money markets through its policies on CRR, SLR.

Securities Exchange Board of India (SEBI) gets involved whenever there is any corporate entity raising money from Indian investors. SEBI through power bestowed on it by the act regulates various players in the markets such as – intermediaries, mutual funds, FIIs, but not the counterparties in government securities.

Another regulator for the debt market is the SROs such as the Stock Exchanges like National Stock Exchange (NSE), Bombay Stock Exchange etc. Broker intermediaries that seek to trade on NSE have to be registered with SRO such as NSE and comply with its rules and byelaws.

Clearly, regulatory jurisdiction in the Indian market is allocated between RBI and SEBI with SROs playing their own part. Secondary debt market participants, thus face a situation where in their working is regulated by multiple entities often resulting in regulatory overlap which affects their working.

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M A R K E T I N F R A S T R U C T U R E : T R A D I N G

Trading is nothing but buying and selling of securities by various counterparties. Trading in debt markets take place on NSE-WDM, OTCEI and the latest is on RBI-NDS which is the primary platform of the wholesale debt markets in India. In order to support financial stability, the trading of fixed income securities, both Government and corporate, must be conducted in markets that are:

Anonymous: counterparties trade through a broker who maintains anonymity till the trade is confirmed.

Efficient: prices balance underlying supply and demand; prices reflect fundamentals; informational efficiency holds; prices react rapidly when news breaks.

Liquid: transactions are executed rapidly without unduly moving prices.

Orderly: equivalent orders are executed at broadly equivalent prices.

Stable and resilient: the market continues to operate in an efficient, liquid and orderly manner during times of uncertainty and market stress.

At present most of the secondary market trades in government securities takes place through bilateral negotiations. In common parlance, this is a telephone market. Deals are negotiated through brokers or done directly by counter parties such as banks, financial institutions, and mutual funds between themselves on the NSE NEAT system (for corporate bonds only) or RBI NDS (for G-Secs only).

NSE WDM trading system called NEAT (National Exchange for Automated Trading) enables its registered trading members across the country to trade simultaneously. The trading system has both – Negotiated Trading Screen for reporting of a predetermined transaction and Order Driven Screen for direct inputs. The Order Driven trading platform has, however failed to pick up as the market mostly prefers negotiated trading through brokers. To meet regulatory requirements brokers are required to report all deals on the NSE NEAT.

Negotiated Dealing System (NDS) an initiative by RBI, is a negotiated dealing platform (no order book) for trading of G-Sec in secondary markets but is largely used a

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reporting platform with price discovery done already done by a voice broker. All outright trades in government securities done of reported on NDS have a facility of guaranteed settlement extended by Clearing Corporation of India Ltd. (CCIL) through the process of novation. All trades in WDM must be reported on NDS for settlement between counterparties who are members of the CCIL.

Only the SGL members can deal among themselves for settlement through the NDS/CCIL route. NDS members also offer Constituent Subsidiary General Account (CSGL) facility to other regulatory approved/authorized clients for Gilt trading on the NDS. Brokers however are not eligible to become members of NDS. All trades are now necessarily settled through the CCIL from 2nd April 2004, on net basis for both securities and funds (DvP III). RBI has migrated to DvP III system where both securities and funds will be netted and to support this it has also introduced RTGS (Real Time Gross Settlement) system which involves real-time transfer of funds in the banking system wherein the banks would be able to access the system in three phases.

For negotiations on secondary market transactions, the identity of the parties is not disclosed to the market pre trade stage. Only the vital information of a transaction is disseminated to the market. Thus, negotiations for secondary deals may continue to take place through broker (voice) intermediaries, because of the specialized services rendered, in terms of keeping in touch with all the participants, knowing their requirements and offering two-way quotes. That is to say, an intermediary can render information, including price quotes about all scrips, which may not be obtainable through the NDS/WDM Order Driven screen. Thus from the point of view of encouraging trading between members and non-members of NDS, the role of intermediaries comes into focus.

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I N T E R M E D I A RY: B R O K E R

A broker is a person or firm that facilitates trades between customers. A broker acts as a go-between and, in doing so, does not assume any risk for the trade. The broker charges a commission for his trades.

Brokers operations in Debt Market are disparate from the operations of Brokers of Equity and F&O segments. There is no single location where debt market participants interact for common business. Participants talk to each other usually through brokers, over the telephone, conclude deals, and report the same on the NDS. In the sense, the wholesale debt market is a virtual market. The counterparties are mostly institutional investors like – Banks, Insurance Companies, Primary Dealers, Provident funds, Mutual funds, Trusts, Corporate treasuries, Foreign Investors (FIIs).

To be a part of trading of G-Secs, a person or firm must have a SGL account with RBI or a constituent SGL account; brokers however do not have this facility. But since they intermediate between SGL account holders in their trading activities and report the same to NSE WDM platform they have to be registered with NSE, and with SEBI the market regulator. It was SEBI Act 1992 that gave SEBI the status as the apex regulating body. SEBI controls bond market and corporate debt market in cases where entities raise money from public through public issues or private placements. Intermediary/Broker not only facilitates trading between counterparties but also performs several other important functions that make the market more vibrant, they are:

Price information on about a security on the exchange may not necessarily a true representation of the underlying market sentiment. The parties thus have to search for counterparties and negotiate the best price. The broker who is in constant touch with the market is thus the right person who can give best quote to the counterparties depending on the market sentiment. Brokers who execute the trade are thus the true liquidity and market debt providers in the market. One can say – “One search for many clients”.

The knowledge of the parties affects the terms of trade and can facilitate formulation of cartels. Broker because of his position in the market structure is constantly aware of the securities and volumes being transacted by different counterparties in the market. This gets reflected in his trading which thus leads to faster and accurate dissemination of information.

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Anonymity is critical to ensuring a fair market. If the counterparties know each other's identity the system could be illegally manipulated and market transparency could be compromised. As a result all trading activities are conducted with anonymous counterparties, brokers facilitate this. The counterparties are disclosed after deal confirmation which helps in maintaining post trade transparency which smoothens the settlement process.

The market is not highly transparent, this is mainly because only the parties to trade have information about the trade. It is necessary to enable market participants to see the full market and have all trade related information on real time basis. Brokers fulfill this need and provide the required transparency.

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E L E C T R O N I C T R A D I N G S Y S T E M S

The use of Electronic Trading (ET) platform has expanded rapidly in recent years in developed economies, from liquid and homogenous instruments on organized exchanges, such as stocks and futures, to a wide variety of instruments in foreign exchange and fixed income markets, in both wholesale inter-dealer markets and retail markets. Such platforms increase the operational and informational efficiency of the market through reductions in transaction costs and improvements in market access and transparency.

ET systems differ from traditional systems, such as floor-based or telephone trading, in a number of ways. ET is location-neutral, i.e. users do not need to be in the same physical location, and allows continuous multilateral interaction (whereas telephone trading is bilateral). This facilitates cross-border trading and cross-border cooperation of trading systems. Furthermore, ET offers large scope for economies of scale and reduction of operational costs, as it is cheap and easy to increase trading capacity, which tends to encourage consolidation. Finally, ET allows straight through processing by easily integrating different parts of the trading process, starting from display of pre-trade information, through to risk management.

Through its impact on trading costs and market architecture, ET will have a profound effect on market functioning and financial stability, in terms of market efficiency, liquidity, volatility and resilience during times of stress.

Automated systems may enhance market liquidity because they are more cost effective than voice based broking, which leads to higher volume traded. They also offer greater transparency of the order book on prices and volumes away from the best bid and ask which can reduce information asymmetry and provide more information for market-makers to manage their inventory exposure more effectively. This leads to a reduction in adverse selection costs and lower Bid Ask Spreads (BASs). Furthermore, trade and quote data are disseminated faster on an automated system, which encourages participants to provide liquidity.

Whether market liquidity is better in automated trading systems or in voice based brokered markets in the organized exchanges is a debatable issue. On one hand it is argued that automated trading systems are less liquid than voice based markets because automated systems cannot handle periods of intense trading as well as voice brokered

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systems. This is because automated systems have a higher degree of information asymmetry concerning the identity of the traders, and deprive liquidity providers such as locals and market-makers of some of their trading advantages. The delays in canceling orders on the automated systems discourage the submission of limit orders as traders are forced to offer free options with duration longer than those on the voice brokered systems. This effect could be especially important during periods of intensive trading, a reflection of high information arrival.

This however has not stopped ET systems from making inroads in fixed income markets. Hybrid architecture of ET and voice broking trading system is the approach that many developed markets are using.

I N T E R D E A L E R B R O K E R

“A broker who acts as an intermediary between market-makers, who wish to improve their book positions by selling or buying securities, without revealing their identities to other market-makers is classified as an Inter Dealer Broker.” (Glossary - www.exchange-handbook.co.uk)

“A brokerage firm operating in the bond or OTC derivatives market that acts as an intermediary between major dealers to inter-dealer trades.” (Glossary - www.investopedia.com)

Electronic Trading mechanisms have become increasingly widespread in equities market. The mechanism has become significant feature of some government bond markets, in particular the U.S., U.K., Canada and Australia Treasury market.

Gilts trade relatively infrequently compared with, for example, equities that are part of S&P CNX Nifty 200, but their average trade size is much higher than equity. This indicates that trading behaviour in the two markets is significantly different and that structures that work in one market may not work in the other. Also fixed income markets are far less homogenous, with many individually less liquid issues (varying in coupon, maturity, frequency of interest payments, etc.) and also few but large trades being executed relative to equity markets.

ET systems for fixed-income securities take several forms. Regardless of their particular form, each system causes the trading process for these instruments to be in line with Electronic Equity Trading systems. There are three basic types of systems:

1. The auction of the bidding systems, in which dealers and investors place direct bids on issues;

2. The inter-dealer systems prevalent in the secondary markets, in which institutional clients trade among themselves / with dealers but not with investors; and

3. The cross-matching systems, in which trades placed by both buyers and sellers are matched anonymously.

The inter-dealer system is seen in the developed markets as an extension to the highly liquid voice-brokered market. It represents a further automation of the screen based voice-brokered markets that allow institutional clients to trade anonymously among themselves in an order-book style market. Voice broking provides to the system real time

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information which will not succumb to intense hours of intense trading, something unlike the total automated electronic trading systems.

This system intents to combine traditional broker’s strength – trusted relationships with clients, an anonymous market, liquidity, flexibility, price guidance in opaque markets – with the opportunities of electronic systems – lower costs, instant access, straight-through processing. The platform thus seeks to support electronic price discovery, price dissemination and order trade management.

What institutional traders want from their brokers is much the same as retail customers want from their banks – multi-channel delivery. They want to be able to see a price on a screen and to trade electronically (even if via broker) but they also want to be able to ring up and trade or ask for advice. This is especially true in the more complex, less liquid, exotic markets where a broker is needed to search out matching buyers and sellers. The hybrid approach – combining voice and electronic broking – is thus emerging as the winning formula.

Major investment and commercial banks in the developed markets are leveraging their trading capability considerably by interfacing with highly liquid electronic systems directly into their own e-commerce platforms. It has thus changed their cost dynamics as transference of commoditized products, such as government bonds to an electronic platform, freeing up their salesforce to focus on more value added products, thereby increasing their profitability.

Some of the functions that Inter-Dealer Broker performs that help the market makers are as follows:

IDB facilitate market maker to unwind any unwanted position acquired in the course of market making activities, within the close environment of his system. Trade information is later communicated to the exchange after the deal is executed.

Markets are always changing, and without brokers, an institution dealing in securities would need to restructure every time one product is up and another is down. Using broker aids institutions in the market making activities and use of its trading platform that does not display their (institutional) position further enhances market making activities.

Greatly enhances marketplace efficiency by eliminating the need for one participant to contact hundred others each time a trade is initiated.

One of the foremost roles an inter-dealer broker performs is providing the liquidity pool. If a bank makes call to another bank (to trade in securities), it will take time and might not ensure that the calling bank gets the best price. Inter-Dealer broker makes 30 – 40 calls in the same time it takes the bank to make 4 – 5, the electronic platform

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which the inter-dealer sets up also speeds up the process. The bank thus gets a finer quote on the IDB system.

Another great opportunity for IDBs in the electronic era is to bring in a whole section of new customers who were excluded because of geography and size thus adding greater depth in the market.

IDB understands and supports client goals, maintains client anonymity and provides extensive experience, uses latest information dissemination technology, and real-time prices and works hand-in-hand with clients to meet the latter’s business objectives and adds important value to every transaction it facilitates.

S U M M A RY O F F I X E D I N C O M E M A R K E T S I N O T H E R

C O U N T R I E S

AUSTRALIAN BOND MARKET PARTICULARS DETAILS

Regulators Reserve Bank of Australia (RBA) Australian Prudential Regulation

Authority – regulates counterparties. Australian Securities and Investment

Commission – SEBI’s counterpart. Issuers & Instruments Issuers

Central, State Government, Banks, FIs, Private Sector and Offshore issuers

Instruments Central - Common Wealth

Government Securities (CGS) – Treasury Bonds, T-Notes and T-Index Bonds.

State – Negotiable Paper Securities, Registered Book Entry Securities.

Banks, FIs – Asset Backed Securities such as MBSs, Bank Acceptable Bills and Negotiable CDs.

Private – CP, Medium Term Notes etc.

Offshore: Kangaroo bonds, other bonds guaranteed by Foreign Govt. or Non Govt.

Counterparties Reserve Bank of Australia, Banks and Financial Intermediaries, Pension Funds, Insurance Companies and Overseas Participants

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Market Infrastructure Australian Stock Exchange (ASX) SFE Clearing Corporation Ltd. Australian Payment and Clearing

Association Ltd. Clearing & Settlement Systems It is primarily OTC market while the

ASX provides exchange based trading for corporate debt securities.

Bond and Repo Clear (BRC), a service of SFECC, is for clearing of transactions in CGS & State government securities.

Austraclear Ltd., a subsidiary of SFECC, is the clearing body for Corporate Debt Securities. It also acts as a depository for securities.

SFE Austraclear provides settlement services for all money market instruments with a T+3 cycles.

All Austraclear transactions & cash transfers in RITS & SWIFT Payment Delivery System are settled on Real Time Gross Settlement (RTGS) basis.

Trading Traders act as principal. Directly with clients via telephone. Through broker screen market Electronically via Bloomberg and

telephone confirmed. Other electronic intermediary such an

internet. Intermediaries Brokers – No Broker conventions.

Price Discovery Mechanism Phone / Electronic through Broker’s

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SINGAPORE BOND MARKET

PARTICULARS DETAILS

Regulators Monetary Authority of Singapore. (MAS).

Association of Banks in Singapore. (ABS)

Issuers & Instruments Issuers Central Government FIs Private Sector- Property companies,

Special Purpose Vehicles, Locally incorporated entities, Foreign entities.

Instruments Government - Singapore Government

Securities (SGS), Treasury Bills, T-Bonds, Marketable Government bonds (Fixed rate bonds), Non Marketable bonds 9Floating rate bonds), Statutory Board bonds.

FIs – Subordinated Debt Private – Corporate bonds etc. Derivatives: Interest rate options,

Interest rate swaps, futures. Counterparties MAS, Primary Dealers, Secondary

Dealers – Banks Merchant Banks, Stock Broking. Finance Companies, Fund Managers, Insurance Companies, Corporations and Individuals.

Market Infrastructure Singapore Stock Exchange (SGX) Debt Securities Clearing and Settlement

System (DCSS). MAS Electronic Payment System

(MEPS). Central Depository Pte Ltd. (CDP) International Central Securities

Depositories (ICSD)

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Clearing & Settlement Systems SGS is only OTC market while Listed Corporate Debt Securities are traded on Singapore Exchange and unlisted Securities are matched on the Debt Securities Clearing & Settlement System (DCSS)

MAS Electronic Payment System (MEPS) for SGS clearing and settlement.

Central Depository Pte. Ltd. (CDP), subsidiary of Singapore Exchange (SGX) for listed Corporate Debt Securities clearing and settlement.

MEPS provide real time and irrevocable transfer of funds and SGS.

DCSS is also a custodian or a depository of corporate debt securities.

International Central Securities Depositories (ICSDs) facilitate clearing & settlement for international investors through their depository agents in Singapore.

Singapore Debt market operates on a T+1 Settlement cycle for SGS.

All transactions in debt securities (SGS & Corporate) are settled on a DVP or FOP basis.

All interbank fund transfers are done through MEPS-IFT subsystem on a Real Time Gross basis.

Trading Trading is done over the phone for SGS through a broker.

Trading of listed securities is done on the Exchange screen.

Trading of unlisted securities takes place on DCSS which is a form of book entry system.

Intermediaries Intermediaries – SGS Brokers

Price Discovery Mechanism Phone through Brokers

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KOREAN BOND MARKET

PARTICULARS DETAILS

Regulators Bank of Korea (BOK) – Acts as bankers’ bank and Government’s bank.

Financial Supervisory Commission (FSC) – setting up basic policies for supervision of financial institutions & securities markets, licensing of government bond dealers.

Fair Trade Commission (FTC) – Responsible for removing anti-competitive regulations & lowering economic concentration in all areas of economy including payment & settlement.

Korea Securities Dealers Association (KSDA) – Manages KOSDAQ and OTC markets and ensures fair trading practices, protects interest of investors.

Issuers & Instruments Issuers Government, Public Sector and

Corporate issuers Instruments

Government - Treasury Bonds, National Housing Bonds & Foreign Exchange Stabilization Bonds.

Special Public Bonds– Seoul Metropolitan Rapid Transit Corporation Bonds, Regional Development Bonds, Monetary Stabilization Bonds, Financial Debentures, and Korea Electric Power Corporation Bonds.

Corporate – Guaranteed bonds, Non Guaranteed Bonds, Collateralized

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bonds, Special rights bonds. Commercial Papers, Negotiable

Certificate of Deposits, Cover bills, Bonds with Repurchase agreements, Commercial bills, Trade bills, Bills issued by merchant banks, Won denominated bonds by foreign corporations.

Counterparties Banks, Securities companies, Investment Trust companies, Pension Funds, Insurance Companies and Overseas Participants

Market Infrastructure Korea Stock Exchange (KSE) – Inter Dealer Market (IDM) & General Bond Market (GBM – Retail market) acts as Central counterparty in the market.

KSDA’s OTC market – Between Individual investors and securities firms or between Financial Institutions.

Korea Securities Depository (KSD) – Bond registration and brokerage of securities lending.

Bank of Korea (BOK) – Cash settlement. Clearing & Settlement Systems KSE is responsible for clearing and

settlement of all securities transactions on the exchange i.e. IDM & GBM.

OTC market accounting for 95% of bond trades does not have a clearing entity.

Settlement in OTC markets take place on a DVP basis or a Free-of-Payment basis with a settlement cycle of T+0.

KSDA makes all disclosure & administration of any information on OTC bond trading.

KSD is the central securities depository (custodian of all assets of institutional & retail investors) and is given the sole right of settling securities on a book entry transfer basis under the Securities and Exchange Act, 1962.

This Act deals securities issuance,

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trading, settlement, risk controls, and regulates business activities of securities companies.

Trading Mostly OTC market through a Inter Dealer Broker (IDB).

Participants in OTC markets manage their credit risk bilaterally through their choice of the counterparty.

On the exchange – IDM (for bonds only) and GBM (Fixed income securities)

Electronic Communication Network (ECN) is an Alternative Trading System.

Intermediaries Inter Dealer Brokers – Authorized by

the FSC who intermediates trading and forwards trade data to KSD.

Price Discovery Mechanism Phone based through Inter Dealer

Brokers

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THAILAND BOND MARKET

PARTICULARS DETAILS

Regulators Bank of Thailand (BoT) Securities Exchange Commission –

SEBI’s counterpart. Thai Bond Dealing Centre

Issuers & Instruments Issuers Central Government and

Corporates. Instruments

Government – T-Bills, Government Bonds, BoT Bonds, State Owned Enterprise Bonds.

Corporate – Straight Rate Notes, Floating Rate Notes, Amortizing and Convertible Bonds.

Counterparties Bank of Thailand, Financial Sector Restructuring Authority, Commercial Banks, Government Savings Bank, Government Housing Bank, Bank of Agriculture & Agricultural Co-operatives, EXIM Bank of Thailand, Finance & Security Companies, Government Pension Fund, Provident Funds, Mutual Funds, Insurance Companies, Life Insurance Companies, Social Security Office and other Inst having deposit account at BoT.

Market Infrastructure Thai Bond Dealing Center (a SRO) Clearing & Settlement Systems BoT which also functions as depository

is responsible for settlement of government securities.

Corporate bonds are cleared and settled at Thailand Securities Depository Co. Ltd.

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Trading Mostly OTC via Telephone and also via vendor screens.

Electronic Screen dealing system of Thai BDC.

Intermediaries Brokers – No Broker conventions.

Price Discovery Mechanism Phone / Electronic through Broker’s

UK BOND MARKET PARTICULARS DETAILS

Regulators Bank of England (BoE) – Banker to the Government & Banks

British Bankers Association (BBA) – Order & efficiency in CD market

Financial Services Authority (FSA) – Supervises individual banks & other financial organizations. (SEBI’s counterpart)

HM Treasury Issuers & Instruments Issuers

Government, HM Treasury, Non Financial companies, FIs, Supranational Agencies, Banks, Building Societies, Corporates, International firms/agencies.

Instruments Gilts - Conventional gilts, Index

linked gilts, Double dated gilts, Undated gilts, Gilts STRIPS.

HM Treasury - Treasury Bills Non Financial Firms, Corporations,

Government & Supranational Agencies (World Bank), FIs & Banks - Commercial Papers

Banks and Building Soceities – Negotiable CDs.

Banker’s Acceptance, Bills of Exchange & Eurobonds

International bonds/securities. Counterparties Government, Banks, Securities Houses,

Corporates, Financial Institutions, Insurance companies, Mutual funds,

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Pension funds, Corporate Treasury Departments.

Market Infrastructure CREST (Central Securities Depository) – Settlement of UK Government bonds and money market instruments.

Clearing House Automated Payment System (CHAPS) – Settlement of high value transactions on RTGS basis.

Coredeal MTS – Recognized Investment Exchange (RIE) providing trading platform for benchmark corporate bond issues and regulated by FSA

London Clearing House (LCH) – Acts as a Central Counter Party (CCP)

European Central Counter Party (EuroCCP) – Offers cross border clearing of European & US securities.

Clearing & Settlement Systems CREST is the principal settlement system which settles UK government bonds and corporate fixed interest bonds on a T+2 basis. It is regulated by the FSA.

Central Moneymarket Office (CMO) which is a part of CRESTCo provides custody & settlement of Sterling and Euro denominated T-bills, local authority bills, bank bills, trade bills, bank and society CDs, commercial papers.

LCH, a Recognized Clearing House (RCH) under the supervision of FSA acts as CCP for cash and repo trades in European government bonds, supranational, agency bonds and Interest Rates Swaps (IRS).

European Central Counterparty (EuroCCP), a RCH subjected to the supervision of FSA provides settlement netting and clearing of securities in multiple currencies.

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Trading UK Government bonds are traded through the gilt-edged market makers via telephone under the rules of the London Stock Exchange (LSE)

Eurobonds & Short term Eurocurrency papers are traded OTC under the rules of International Securities Market Association (ISMA).

Intermediaries Gilt Edged Money Market Makers (GEMMs).

Price Discovery Mechanism Phone / Electronic through Broker’s US BOND MARKET

PARTICULARS DETAILS

Regulators Federal Reserve Bank. Security Exchange Commission

(SEC). Municipal Securities Rulemaking

Board (MSRB). National Association of Securities

Dealers (NASD). Fixed Income Clearing Corporation

(FICC). National Securities Clearing

Corporation (NSCC). Issuers & Instruments Issuers

Central and State Government City Municipalities Banks FIs Private Sector- Property companies,

Special Purpose Vehicles, Locally incorporated entities, foreign entities.

Instruments Government – US Government

Securities, Agency / Sponsored Enterprises Securities.

State / City – Municipal bonds. Corporate – Notes, Bonds, CP and

Fixed Rate Capital Securities (hybrid of bond & stock).

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Banks - CDs FIs – Mortgage Backed Securities

(MBS). Counterparties Banks, Corporations, FIs, Primary

Dealers Market Infrastructure Fixed Income Transaction System

(FITS) – standardizes and automates the processing of transactions in municipal and corporate bonds.

Clearing & Settlement Systems Fixed Income Clearing Corporation – provides clearing & settlement for US Government and all other fixed income paper.

The Depository Trust Company (DTC) acts as the central depository.

Trading Primarily OTC. Listed Corporate Bonds are matched

automatically by systems at NYSE and then routed to FITS.

Intermediaries Brokers, Inter-Dealer Brokers

Price Discovery Mechanism Phone / Electronic through brokers.