- bills / cmbs of the average month - end stocks need to reviewed as the market has grown significantly during recent years and the prescribed turnover ratios are far too low at present. ( c ) market development ( i ) widen investor base : it is the responsibility of the primary dealers to provide liquidity in government bonds as well as interest rate products. in order to do so, pds need to make efforts to widen the investor base, distribute securities more efficiently and bring in retail and mid - segment investors. reserve bank has imposed targets for retail and mid - segment business, but pds must cultivate the clients as a business opportunity rather than regulatory compulsion. even now certain entities are depending on brokers to buy g - sec at high costs. pds need to expand their reach and pds reluctance to do so in this technology driven era raises fundamental questions relating to their commitment. ( ii ) develop interest rate derivative markets : another aspect of market development is to deal in interest rate derivatives and provide liquidity. as entities dealing in interest rate risk, it is surprising that pds are not active in using the derivatives for hedging and trading. irs market is still dominated by select foreign banks. reserve bank permitted cash settled interest rate futures ( irf ) on 10 - year government of india security with settlement price based on a single benchmark bond after extensive consultations with stakeholders. the irf has received reasonably good response from the market with average trading volume at around rs. 3000 crore. however participation is not widespread as many market participants including pds are yet to start using the product. pds, as expert investors are expected to actively use the available products to hedge. this would perhaps call for pds warehousing more securities for market making. the interest rate risk that this may entail needs to be mitigated through greater participation in the irf market. why this is not happening needs serious soul searching. ( iii ) market intelligence : debt management operations of the sovereign, especially large scale borrowings can be accomplished only with active engagement with all stakeholders. bis central bankers ’ speeches we have been meeting the market participants regularly and exchanging views on several issues such as auction calendar, demand, maturity of instruments, introduction of new products etc. pds have been great sources of information and provided valuable inputs while preparing the auction calendar and introducing products like inflation indexed bonds, interest rate futures etc. we would like to keep the channel of communication free and open. ( iv ) prevention of

primary dealer business is exposed to interest rate cycle and adverse movements would expose their balance sheets to losses. further, geopolitical and economic risks and consequent volatility in domestic or international financial markets could potentially damage the financials. this risk is amplified for standalone pds due to small balance sheet size. it is essential that pds have strong financials and risk management capabilities. in order to protect pds from downside risks, reserve bank has allowed pds to diversify their businesses. however, only a couple of pds have diversified. bis central bankers ’ speeches the pd boards must review the corporate strategy and de - risk the business from vagaries of interest rates and financial market volatility. ( iv ) exclusivity : an issue that has been debated for some time is whether we can think of exclusivity to primary dealers. exclusivity would enable issuer to sell bonds easily and also strengthen primary dealers. however, exclusivity gives commercial advantages and this aspect must be kept in mind in a market where major investors have regulatory and statutory mandate to invest in government securities. in a situation, where some of the primary dealers are banks, exclusivity would mean that level playing field does not exist for access to slr assets. further, standalone pds with small balance sheet size and limited holding capacity need to reflect on huge demands exclusivity would impose on them, given the large size of issuances. ( b ) market making primary dealers are mandated to make markets in g - sec and provide liquidity. however, market making efforts of pds are limited to few liquid bonds. once rbi starts rolling down the htm limit, forcing churning of portfolio by banks, particularly in the public sector, pds get to play a more active role in market making. gandhi working group had recommended that one of the ways for improving liquidity is to consider allocating specific securities to each pd for market making and, if required, rotate the stock of securities among the pds at periodic intervals. this would ensure continuous availability of prices for a select group of securities. reserve bank is in consultation with government and pdai to operationalise this recommendation. initially semi - liquid securities would need to be chosen. we plan to operationalise the market making scheme in the next fiscal and expect significant improvement in liquidity. in this context, the present annual minimum turnover ratios of 5 times for government dated securities and 10 times for t