Market regulator Securities and Exchange Board (Sebi) today called for reforms in the underlying market and said regular issuance of government bonds across maturities can go a long way in achieving this by way of increasing liquidity.
“The success of the derivatives market is dependent on the underlying market, which has to be liquid. There have to be reforms in the underlying market as well. There should be regular issuance of government bonds across maturities to make the underlying market of interest rate futures more liquid,” Sebi Chairman UK Sinha said.
Sinha was speaking at the launch of interest rate futures (IRFs) on the National Stock Exchange.
He refused to take a question on media reports which said that he got a two-year extension.
Sinha said almost 34 per cent of the public bonds issued by government were held by the banking system. Unless they participate, any produce has little chance to succeed, he said, adding that the three earlier attempts in last 11 years to launch these products failed.
Sinha said the regulator is also looking into how to provide more liquidity, specially in repo market and the linkage between the currency the interest derivatives market.
He pointed out that some of the measures the regulator has taken in last fiscal, which led to lower volumes in the currency derivatives market, will also be looked into.
“Going forward, I would also hope RBI, Sebi and exchanges together to look at what is needed for development of corporate bond market,” Sinha said.