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Indian Financial System

Notes 4. …………………….are service providers in the market, including stock brokers, sub-brokers,
financiers, merchant bankers, underwriters etc.
5. A developed, dynamic and vibrant capital market can immensely contribute for speedy
economic ……………..and……………….

4.4 Participants in the Securities Market

SAT, regulators (SEBI, RBI, DCA, DEA), depositories, stock exchanges (with equity trading, debt
market segment, derivative trading), brokers, corporate brokers, sub-brokers, FIIs, portfolio
managers, custodians, share transfer agents, primary dealers, merchant bankers, bankers to an
issue, debenture trustees, underwriters, venture capital funds, foreign venture capital investors,
mutual funds, collective investment schemes.

Government Securities Market

The government securities market is at the core of financial market in most countries. It deals
with tradable debt instruments issued by the government for meeting its financing requirements.
The development of the primary segment of this market enables the managers of public debt to
garner funds from the market in a cost effective manner with due recognition to associated risks.
A vibrant secondary segment of the government securities market helps in the effective operation
of monetary policy through application of indirect instruments such as open market operations,
for which government securities act as collateral.

Immanent Features of Government Securities Market

The government securities (g-securities) market is distinct from other constituents of financial
market because of the following characteristics:
1. The g-securities market represents the most significant segment of financial market all
over the world in as much as funds garnered through the issue of these securities account
for major portion of the total funds mobilized on the stock exchanges. Since the 1970s, the
g-securities market witnessed phenomenal growth. However, fiscal consolidation exercised
by many countries in the 1990s led to sharp shrinking of the bond markets, especially the
US. In contrast, the bond market in Japan soared by 150 percent of GDP by 2005. During the
period 2000-2005, the size of the g-securities market in different countries including India
surged.

2. The g-securities market deals in securities that are highly liquid and risk free. The
g-securities are liquid because they are marketable debt instruments. These securities
(especially central government bonds) are absolutely secured financial instruments,
guaranteeing certainty of income and capital. This is why such securities are also called
'gilt-edged' securities. The interest rate on government securities is the risk-free rate
against which all other interest rates are measured.
It is interesting to note that the g-securities markets in different countries have, except the
US, been least liquid. That is why; these countries have focused on improving trading
liquidity of the market through various measures.

3. The primary objective of the government securities market in various countries has been
to reduce the cost of government borrowings. However, in recent years, the focus is on
managing risks inherent in the debt portfolio. Many countries have, of late, pursued a
strategy of managing the cost of government borrowing in the medium to long-term with

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