DRAFT NORMS TO DEVELOP G-SEC MARKET LAUNCHED BY RBI

The Reserve Bank of India (RBI) launched draft guidelines for introduction of STRIPS (Separate Trading of Registered Interest and principal of Securities) in government securities. This is in order to develop the government securities market. Stripping is a process of converting periodic coupon payments of an existing government security into trad able zero-coupon securities, which will usually trade in the market at a discount and are redeemed at face value. Thus, stripping a five-year security would yield 10 coupon securities (representing the coupons), maturing on the respective coupon date and one principal security representing the principal amount, maturing on the redemption date of
the five year securities.