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Informist, Friday, May 2, 2025

 

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--RBI releases working group report on market trade timing and settlement
--RBI: Seek comments on mkt timing, settlement working group report by May 30
--RBI working group report: Recommend extending call money mkt to 1900 IST
--RBI working group report: Recommend mkt repo timings to extend to 1600 IST
--RBI working group report: Recommend triparty repo timings till 1600 IST
--RBI working group suggests retaining current mkt times for gilts, FX trade
--RBI working group suggests holding scheduled LAF auctions 0930-1000 IST
--RBI group: Propose gilt transactions with non-residents from 1700-2330 IST
--RBI group: Propose 1730-1830 IST as settlement time for govt securities
--RBI group: Propose 1730-1830 IST settlement time for triparty, mkt repo 
--RBI group: Propose to retain market hours for interest rate derivatives 
--RBI group: Market trade, settlement times need periodic review 
 

 

NEW DELHI – The Reserve Bank of India should consider allowing onshore transactions in government securities by non-residents beyond trading hours of the bond market, a working group set up by the central bank for reviewing market trade and settlement timings said in its report. Among its other recommendations, the group suggested extending the money market timings.

 

The window for these trades should be 1700-2330 IST, the group said, even as it recommended keeping trading hours for government securities unchanged at 0900-1700 IST. These transactions must be reported to the RBI's Negotiated Dealing System – Order Matching platform, hosted by Clearing Corp. of India Ltd., on a T+1 basis between 0700 IST and 0830 IST. The settlement of these transactions would happen on a T+2 basis, according to the group's suggestions.

 

"The Group also felt that the quantum of trades post onshore market hours was not expected to be large (as has been the experience of peer Asian economies)," the report stated. "This mechanism may be reviewed at a later period based on the experience and trends in trading volume." The group had received suggestions to extend market hours to allow for trades in US market hours, and had come upon this as a compromise allowing non-residents more freedom to take cues from that market, it said.

 

The working group was set up by the RBI in February and was headed by Executive Director Radha Shyam Ratho. It submitted its report on Monday, before the Wednesday deadline. The central bank sought comments on the report from stakeholders by May 30.

 

As for money markets, the group recommended extending the call money market timing to 1900 IST from the current 0900-1700 IST. The report said the request came from standalone primary dealers. That section of the market also asked for the reporting window for these transactions, including cancelled trades, to extend to 1930 IST. The working group accepted the suggestion.

 

Additionally, the group recommended unifying the market timings of the market repo and triparty repo, both collateralised lending arrangements with widespread market participation beyond banks, to close at 1600 IST. Since Dec. 12, 2022, both markets have begun at 0900 IST but market repos in government securities ended at 1430 IST, while the triparty repo market ends at 1500 IST. The extension in market timings becomes key as the rates in these markets will be used to compute the Secured Overnight Rupee Rate Benchmark, the creation of which was approved by the RBI in December following another committee report.

 

The trading hours should also be unified for triparty repo transactions through designated settlement banks and through the RBI, the group said. Other recommendations to the RBI on settlement timings were that transactions in government securities, triparty repo and market repo all be settled at 1730-1830 IST, in line with the suggested shift in trading hours. Currently, the market repo and triparty repo transactions on T+0 are settled with outright transactions in government securities on T+1, until 1730 IST.

 

While the working group had received several other suggestions for tweaking settlement timings, it did not recommend these due to various reasons including cross-market liquidity. The settlement timings for the primary auctions are recommended to remain unchanged at 1000-1300 IST. As for the merger of auction and secondary market settlement timings in government securities, the working group said that challenges would arise since the auction settlement is not guaranteed by the Clearing Corp. of India.

 

"The Group also discussed the feasibility of permitting T+0 transactions in Government securities to enhance liquidity management," the report said, citing banks as the source for the suggestion. "However, the Group felt that alternative instruments for liquidity management are available for most market participants and that permitting T+0 transactions in Government securities could fragment liquidity in the market and compromise price discovery by dispersing trading activity across multiple settlement cycles."

 

The market hours for the foreign exchange market and interest rate derivatives market were recommended to be left unchanged. The group said that non-resident investors utilising the extended window for government securities transactions could use the foreign currency settled overnight indexed swaps to hedge their exposure. As for the rupee, the feedback suggested that current market timings met the needs of the market, and the ability to transact beyond onshore market hours allowed enough flexibility for both banks and clients. It also recommended the single daily settlement of over-the-counter foreign exchange transactions by Clearing Corp. of India should be retained. 

 

Market dynamics were constantly shifting and there was more and more integration of onshore and offshore markets, the report said. "Accordingly, the Group noted the need for a periodic review of market trading and settlement timings to ensure that they remained relevant given the evolving market microstructure," it said.  End

 

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Reported by Aaryan Khanna

Edited by Ashish Shirke

 

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