Trading Activity in the Indian Government Bond Market

39 Pages Posted: 9 Aug 2016 Last revised: 30 Aug 2017

See all articles by Michael J. Fleming

Michael J. Fleming

Federal Reserve Bank of New York

Seema Saggar

Government of India - Reserve Bank of India

Samita Sareen

New York University (NYU)

Date Written: 2016-08-01

Abstract

We study how the Indian government bond market functions, how it has changed over time, and what factors help explain some of its features. Looking at the primary market, we describe how underwriting obligations are allocated to primary dealers via auction and identify several significant determinants of the underwriting commission cutoff rate, including the launch of the Negotiated Dealing System-Order Matching System (NDS-OM) electronic trading platform. Turning to the secondary market, we explore the importance of benchmark bonds, the launch of NDS-OM, the growth in trading activity, and the migration of activity from the over-the-counter (OTC) market to NDS-OM. We find that benchmark bonds, larger issues, and recently issued bonds tend to trade more actively, but that the launch of NDS-OM is associated with a reduced likelihood of a bond trading but greater trading volume conditional on trading. Benchmark bonds, larger issues, and recently issued bonds are associated with a greater share of NDS-OM trading volume (as opposed to OTC trading volume), suggesting that the NDS-OM platform is especially attractive for trading bonds with benchmark attributes.

Keywords: India, government bonds, trading activity

JEL Classification: G12, G15, H63

Suggested Citation

Fleming, Michael J. and Saggar, Seema and Sareen, Samita, Trading Activity in the Indian Government Bond Market (2016-08-01). FRB of NY Staff Report No. 785, Available at SSRN: https://ssrn.com/abstract=2820482

Michael J. Fleming (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States
212-720-6372 (Phone)
212-720-1582 (Fax)

HOME PAGE: http://www.newyorkfed.org/research/economists/fleming/

Seema Saggar

Government of India - Reserve Bank of India ( email )

Bakery Junction Service Road
Vazhuthacaud
Thiruvananthapuram, 695033
India

Samita Sareen

New York University (NYU) ( email )

Bobst Library, E-resource Acquisitions
20 Cooper Square 3rd Floor
New York, NY 10003-711
United States

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