The Government Securities market (G-Sec) comprising of treasury bills and bonds is expected to see a complete overhaul with the establishment of an e-trading platform for the secondary market, according the Central Bank (CB) Governor. This is amongst the many reforms and improvements planned for 2013.

According to the Public Debt Department official at the CB, general public will also be enabled to invest in T-bills & T-bonds electronically, similar to the existing electronic bidding process in the primary market.

“We are expecting to provide liquidity support for primary dealers and an appropriate mechanism will be put in place to ensure complete underwriting of issuances,” said Ajith Nivaard Cabraal on the primary market operations adding that half-year T-bond calendar would also be issued.

The improvements to the G-Sec market could not have come at a better time when there is increased emphasis on domestic sources (particularly in the non-bank borrowings) to finance the 2013 budget deficit. Total domestic financing is estimated to rise 62 percent Year-on-Year to Rs.421 billion, likely due to non-bank borrowings (consisting largely of T-bills & T-bonds) of Rs.289 billion (vs. an avg. of Rs.62 billion over the past two years).

G-Sec market, the most liquid debt securities market in the country has a total outstanding stock of T-bills worth Rs. 710 billion and T-bills worth Rs.2.5 trillion as of January 09, 2013.

He said the CB’s intention was to increase competition at primary auctions through greater participation of institutional investors.

At present the general public can invest in G-Secs through 12 primary dealers and any Licensed Commercial Bank.

In response to the very high foreign demand for Rupee denominated government securities that prevailed at the beginning of December 2011, the CB raised the limit on foreign holdings of T-bills & T-bonds from 10 percent to 12.5 percent. As a result, Sri Lanka can accommodate up to Rs. 60 billion foreign investments in to T-bills & T-bonds this year.

Net inflows from sale of T-bills & T-bonds in 2012 were US $ 843 million.

Speaking on secondary market developments, “a guaranteed central clearing arrangement on net-settlement basis will be established to eliminate counterparty credit risk while enhancing the efficiency of intraday liquidity of participant,” he remarked.

Besides, the CB is also contemplating to introduce ‘covered short selling’ of G-Secs while the reporting of all G-Sec transactions will be made mandatory.

“Appropriate products for a derivate market which will help participants to enhance their return while hedging their risk exposures in the cash market will be introduced once the cash market is developed,” said Cabraal adding that information asymmetry will also be eliminated thereby narrowing spreads.

In the run up to introducing many improvements in to the G-Sec market, last December, four indices which cover the performance of T-bills (91 Day & 364 Day) & T-bonds (3 year & 5 year) were introduced by NDB along with CRISIL.