accordingly displays kinks, reflecting the liquidity premium commanded by select securities / tenors. to a certain extent, this is the result of the market microstructure in india, dominated as it is by ‘ buy and hold ’ and ‘ long only ’ investors. we need to develop a yield curve that is liquid across tenors. 26. second, expansion of the investor base is key to further development of the market. the rbi, together with the government, is making efforts to enable international settlement of transactions in g - secs through international central securities depositories ( icsds ). once operationalized, 4 / 5 bis central bankers'speeches this will enhance access of non - residents to the g - secs market, as will the inclusion of indian gsecs in global bond indices, for which efforts are ongoing. to encourage direct retail participation in g - secs, rbi has announced the ‘ retail direct ’ scheme, a one - stop solution to facilitate investment in government securities by individual investors. 27. third, liquidity in g - secs market tends to dry up during periods of rising interest rates or in times of uncertainty. while the market for ‘ special repo ’ facilitates borrowing of securities, it is worthwhile to consider other alternatives that ensure adequate supply of securities to the market across the spectrum of maturities. it may be recalled that discussions were held on the introduction of securities lending and borrowing mechanism ( slbm ) with a view to augment secondary market liquidity, by incentivizing ‘ buy and hold ’ type of investors ( e. g., insurance companies, pension funds ) to make available their securities to other market participants. useful feedback was received on the subject from the fimmda and the pdai. i would urge that these discussions be carried forward with a view to evolving market - based mechanisms that enable the lending and borrowing of securities as part of overall market development. 28. fourth, the interest rate derivatives ( ird ) market has developed over the years with the availability of a wide range of products. the only major liquid product, however, continues to be the mumbai interbank offer rate ( mibor ) based overnight indexed swaps ( ois ) market. participation in the ird markets is also largely limited to foreign banks, private sector banks and primary dealers. i am happy to note that based on rbi directions, fimmda formulated the operational guidelines for trade in swaptions in consultation with market participants and trading in swap

be studied in depth for adoption in india third, in regard to development of gold market, the establishment of a gold exchange would help in efficient price discovery and emergence of healthy and transparent practices in the market. the basic framework for such an exchange already exists with 13 banks active in import of precious metals. five of them have launched the gold deposit scheme also. they are exploring possibilities of introducing ‘ paper gold ’ products like gold accumulation plans. these banks are fully authorised to sell / lease gold to the market players. they can also enter into forward contracts in a limited way. a committee set up by the rbi has studied the feasibility of introducing futures trading in gold and this is being examined by the forward markets commission. once the banks start trading among themselves, with mmtc, stc and also with big traders according to the demand / supply dynamics, a formal move towards a gold exchange is appropriate. they can even use the infrastructure available with an existing stock exchange like national stock exchange ( nse ) for this purpose. fourth, as part of the positive approach to consumers, the present initiatives by bis may be supported, strengthened for improvement, reviewed and further measures considered. for example, several banks and other institutions, which are currently importing gold in large measures, could consider establishing a gold market development agency as a voluntary self regulatory organisation with participation from gold trade and bis to devise mechanisms by which the efficiency of the market and the integrity of the products are ensured and augmented. for example, banks can play a role by prescribing different margins for loans extended against the pledge of gold with hallmark and those without. similarly, the banks could take into account, the practice of issuing gold content guarantee certificates by the gold jewellers while extending credit. this would also help banks in making proper assessment of the inventories of the traders. finally, with a full recognition of the importance of gold, not only in the indian economy, in terms of import, export, or consumption, employment, etc., but also in the indian society, it would be desirable to encourage research and policy studies on various aspects relating to a positive approach to gold markets and gold policy. illustratively, these may cover three broad areas, viz., gold reserves and their role in the forex reserves ; the development of gold markets in conjunction with financial markets ; and the macro economic implications of gold policy and gold markets, especially in the context of financial savings. let me again thank the organizers for giving me this