Stock on tap, Financial Management

Stock on Tap:

Most of the players who invest in these securities are institutions and hence the volumes are high. Considering that these securities are the first choice for banks to comply with SLR requirements, the demand is continuous. As all the institutional players deal with these securities in the demat form, the settlement procedures are also simple and thus enhance the liquidity. The secondary market transactions are essentially negotiated transactions between the players and hence they can be classified as OTC transactions.

The secondary market transactions in government securities are given in Table 1 of Appendix I. It is also known as the telephone market. In addition, the National Stock Exchange (NSE) has a wholesale debt market segment on which all the government securities are traded. Trading on NSE is screen-based. This facilitates all the participants to have online information about the trading. A participant who wants to initiate a deal or respond to an offer displayed on the screen, contacts one of the brokers who through his system places the order to buy or sell. The terms of the deal specify the details of the security, price, volume and date of settlement.

There is no prescribed settlement period in case of debt market as in the capital markets. Hence the deals may be entered for settlement on the same day or 1 or 2 days after the date of trading. Often, interbank GOI Sec trades settle on the same business day, whereas trades with non-bank counterparties settle either on the same day or up to five business days after the trade. If both the parties to the trade do not have current account but only an SGL account with the RBI, then the seller gives an SGL note detailing the transaction to the buyer. An SGL note is lodged with the RBI who makes the entries in the accounts of the two parties. All the institutional participants such as banks, FIs, Mutual Funds have an SGL account and Current Account with RBI. Both the buyer and the seller execute an SGL form under Delivery Versus Payment (DVP) system which is presented to the RBI. The RBI ensures the availability of funds with the buyer and security with the seller and posts these transactions in the Current Accounts and SGL Accounts.

 

Posted Date: 9/10/2012 7:38:17 AM | Location : United States







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