h r khan : towards vibrant debt markets – a 7iframework keynote address by shri h r khan, deputy governor of the reserve bank of india, at the 13th fimmda - pdai annual conference on “ asian money, bond & derivatives in the new global economy ”, kuala lumpur, 27 january 2012. * * * the speaker acknowledges the contributions from shr. n. r. v. v. m. k. rajendra kumar, shri himanshu mohanty and shri surajit bose. it is a great pleasure to be here amidst you all for the 9th annual meeting of the fixed income money market derivatives association ( fimmda ) and the primary dealers association of india ( pdai ) in this enchanting and energetic city of kuala lumpur. relations between our two great nations, india and malaysia, date back to ancient times. indeed the name malaysia is believed to have been derived from the sanskrit root malayadvipa which means “ peninsula of mountains ”. this land had attracted hordes of traders from india in the ancient times and the exchange was not confined not merely to merchandise but also extended to deep socio - cultural ties including customs and cuisine. the tradition continues. i am happy to note that this meeting has attracted a different breed of traders from india and elsewhere, the bond and derivative traders, to introspect on the challenges facing us in these exciting times. risks from the global macroeconomic environment remain elevated even as growth remains subdued & unemployment high in most of the advanced economies. the euro - area remains under stress. neither default by one or more of the peripheral countries nor the severe austerity measures put in place to avoid a default forebode good tidings for the economy or the markets. though the emerging economies have been less bruised in the process, funding constraints in international financial markets pose a threat to both the availability and cost of capital and in turn on their growth prospects. in these challenging times, the imperative from our perspective is to ensure that the funding needs of expanding economies like india and malaysia are met so that the growth trajectory upon which realisation of the aspirations of millions of our underprivileged people depends is not derailed. at the same time, the crisis has reinforced global concern for financial stability and it is equally important to ensure that latent fault lines in the financial sector do not herald a crisis with even greater suffering than tardy growth. speaking here in kuala lumpur, one cannot help recoll

segments of the repo market. for example, term repo in german collateral for maturities longer than three months has traded below the deposit facility recently, at around - 25 bps. that said, let me emphasise once again that there is a difference between scarcity and shortage. the problem would be a shortage of collateral and / or an impaired price mechanism. to avoid any shortage of assets that are used as collateral, especially at the high end of the credit spectrum, pspp securities ( as well as cbpp3 and smp securities ) will be made available to the market through securities lending. this will enable securities purchased by the eurosystem to be used in private transactions and relieve frictions in the functioning of the market, such as failed repo deliveries, which may arise from our purchases. see “ european central bank : euro money market survey, october 2014 ”. see song, z. and h. zhu, “ qe auctions of treasury bonds, ” 2014, finance and economics discussion series, federal reserve board. see corradin, s. and a. maddaloni, “ the importance of being special : repo markets during the crisis, ” 2015, working paper. see committee on the global financial system ( 2013 ), “ asset encumbrance, financial reform and the demand for collateral assets ”, publications no 49, may. bis central bankers ’ speeches other central banks that have conducted large - scale asset purchases instituted such securities lending facilities. for example, the bank of england made their entire gilt holdings available to the uk ’ s debt management office, which then lent them to market participants on demand. a similar arrangement may be more challenging to implement for the eurosystem as there are 19 different jurisdictions to deal with and 19 dmos. being mindful of the institutional set - up of the euro area, we will implement securities lending in a decentralised fashion. securities lending will not only be important to ensure collateral availability but also for market liquidity in general. the ability to borrow securities from the eurosystem will allow intermediaries to continue quoting competitive prices, as it gives them more time to subsequently cover their open positions in the market. by supporting market liquidity, securities lending will be an essential element for the success of our asset purchase programmes. thank you very much for your attention. bis central bankers ’ speeches