Ahead of Indian sovereign debt’s inclusion in global bond indices, some banks have on behalf of their overseas clients requested the Reserve Bank of India to permit international electronic trading platforms to execute trades in domestic government securities in order to ease market access.
“Following JP Morgan’s decision to include Indian bonds in their index, banks have asked the RBI to allow electronic trading platforms (ETP) such as New York-based MarketAxess to execute trades in Indian bonds. This request has come from FPI clients,” a source aware of the developments said.
“The biggest advantage of having a single-point ETP would be time—because sometimes the time taken to execute trades under the current setup can affect pricing. Now, with global bond index inclusion happening, FPIs will necessarily step up activity in Indian bonds,” the source said.
An email sent to the RBI seeking comment on the matter did not receive a response by the time of publication.
In its statement on development and regulatory policies on Thursday, the RBI said it would review the regulatory framework for electronic trading platforms.
At present, when foreign clients wish to execute transactions in Indian government securities, the trades largely happen through what traders term the ‘voice’ method. Under this system, foreign clients contact the sales teams of banks and place the specifics of orders such as the quantum of securities to be bought or sold and value dates, which are then passed on to the trading desks.
Multiple flows of such types of communication—informally referred to as ‘chats’—occur between foreign clients and bank sales and trading teams in order to execute the transactions. Once the deals are struck, the sales teams inform the traders on the Indian trading desks of banks, following which the local teams report the trades on the Negotiated Dealing System-Order Matching (NDS-OM) platform, which is housed by the Clearing Corporation of India Limited (CCIL). The NDS-OM is owned by the RBI.
The CCIL enters the picture once deals are struck and the details are sent to custodian banks.“A web version of the NDS-OM is on offer but FPIs may be more comfortable with an existing global ETP. In any case, once deals are struck, they will still have to be reported to the NDS-OM,” another source said.
In September 2023, JP Morgan announced the inclusion of Indian government bonds in its emerging markets index starting June 2024. Analysts predict overseas flows in the range of $25-40 billion because of the step.
In early January, Bloomberg Index Services said it will start consultations for feedback on including Indian government bonds in the Bloomberg Emerging Market Local Currency Index, potentially bringing inflows worth around $2 billion if investors were to respond favourably to the proposal.
