– 3 – there is enormous advantage in providing member terminals to sgl account holders as this will enable them to view rbi announcements regarding fresh auction, floatation of issue, conversion of loans, repo auctions, interest rate resets for floating bonds and other such information. market participants will also be able to tender bids in auctions of dated government securities, t - bills and repos from all centres. the entire auction process, including allotment, determining and communicating payment amount, and advising successful and rejected bids to bidders, will be online. the list of successful bidders and the consideration amount payable would form the input to the settlement and servicing system. while the link - up has advantages, it can be made operational only through electronic sgl forms. early enactment of the new government securities act replacing the public debt act 1944 is essential since it will provide the rbi with substantive powers to design and introduce electronic sgl transfer forms. regulation in the repo market in our market, interbank repos are permitted under regulated conditions. after the irregularities in securities transactions in 1992, eligible participants and instruments have generally been restricted but subsequently liberalised in a gradual manner. now, all government securities have been made eligible for repo. besides banks, primary dealers are allowed to undertake repo / reverse repo transactions. nonbank participants have also recently been allowed to lend money through reverse repo to other eligible participants. in terms of instruments, repos have also been permitted in psu bonds and private and corporate debt securities, provided they are held in dematerialised form in a depository and the transactions are done through a recognised stock exchange. however, this can be operationalised after the government issues a clarification regarding applicability of stamp duties on transactions in dematerialised instruments. admittedly, the interbank repo market in india needs to be made more transparent and better standardised. i have, time and again, been encouraging market participants to evolve code of best practices in the repo market through the primary dealers association or fimmdai. the rbi has also been actively pursuing this issue in the advisory committee on government securities market and the standing committee on money market. issues relating to evolving a code of best practice such as eligibility of participants and their requirements, eligibility of instruments for repo, general standards, systems and documentation, legal agreement, margin, deal confirmations, and default scenario were discussed in the recent meeting of the standing committee on money market

thus be categorised as follows : 1. measures that address p, viz., the g - sec portfolio size of banks ; 2. measures that address d, viz., the duration risk ; and, 3. measures that address the valuation impact in scenarios with potentially large changes in yield. measures that address the g - sec portfolio size of banks the size of the g - sec portfolio of banks is mainly a function of balance sheet choices made by banks among competing assets. recognizing at the outset that g - sec portfolio is subject to interest rate risk, a risk - management strategy can be put in place along the following lines : 1. the bank ’ s board in discussions with the treasury head and chief risk officer ( cro ) can approve the risk limit for the portfolio in terms of the capital that can be put at risk. this assigned risk capital, much like a corporate budget, should transform into a risk strategy and be guarded in a manner that adjusts for changing risks rather than merely serving as an easy - to - game compliance limit. 2. the assigned risk capital should not get wiped out under reasonable stress scenarios, which can be modelled as high confidence level tail events for bond yields under value at risk or expected loss approach. in other words, banks should not lose capital allocated to the treasury function other than with an extremely small likelihood. 3. given the non - linearity in yield movements ( the risk that risk will change, or in other words, yield volatility being stochastic ), as manifested in the episodic volatility phases i showed, banks should also factor in historical stress scenarios. under these historical stress tests as well, capital allocated to the treasury function should not get wiped out. 4. in addition, banks should conduct reverse stress tests, i. e., ask the question as to what kind of g - sec yield movements, parallel shift at a minimum but ideally also yield - curve steepening, would wipe out the allocated capital? indeed, such reverse stress tests have been recommended by the reserve bank and could become part of board - level risk discussions. 9 / 12 bis central bankers'speeches 5. however, no stress test is perfect ; and, no risk measure such as value at risk or expected losses which use historical distributions can anticipate fully the nature of future yield movements. hence, banks also need to adopt robust risk controls for resilience. this can involve concentration limits, so banks do not exceed their exposure