The committee has recommended a series of measures to deepen the market, which included uniform accounting practices, day-light overdraft facility for current-account holders, guidelines for SGL account operations, specific date of deal and settlement, a master re-purchase agreement and code of conduct for repos transactions. The committee has also suggested the introduction of roll-over facilities for repos.

Participation in the repo market by new players should be allowed provided the debt instruments are held in dematerialised form and the transactions are undertaken through approved stock exchanges with well capitalised clearing corporation functioning as legal counter party, the sub-group of the technical advisory committee on government securities market said in its report circulated for obtaining market views.

The sub-group said repo transactions involving triparty could also be permitted where the triparty agent is a well capitalised clearing corporation licensed to function as a legal counterparty in all such transactions and where such agency would define acceptable securities from within the specified broad categories.

The report, released on Friday, has underlined the need for the Centre to withdraw its notification dated June 27, 1969, in order to legally widen the base of participations in the gilts market.

The sub-group of the technical advisory committee included Ajay Shah of the Indira Gandhi Institute of Development Research, NSDL managing director CB Bhave and Reserve Bank general manager K Venkatappa.

The report has examined issues like keeping the needs of market participants, an adequate system of over-the-counter trading of repos with adequate checks and controls.

According to the report, inspite of there being a strong case for some amount of expansion of the repo market, there is always a lingering fear that re-introduction of repos could lead to temptation on the part of institutions to exploit any systemic weakness to their advantage which would severely impair further freeing of the debt market. "It is imperative on part of both the Centre and Reserve Bank to tread carefully as far as expansion of the repo market is concerned," the report said.

The report has also suggested phase-wise measures for the development of the market, enhancing participation, including a variety of eligible instruments with provisions for appropriate dealing and settlement system. The report has also suggested an amendment to the section 29 A of the Securities Contract Regulations Act (SCRA) to enable the Government to delegate regulatory powers for trading in gilts and other debt instruments.

The report has suggested immediate replacement or amendments of Public Debt Act, (PDA. 1944) in order to legalise the electronic transfer of gilt securities. The Government Securities Act which will replace the PDA is awaiting final approval from the Centre.

The report has also examined the present status of the repurchase agreements (repo) market, a need for a standard legal documentation covering areas like margin requirements and additional collaterals to be provided either in the form of cash or equivalent securities to make up for the short fall. At present, there is no standardised accounting of repo transactions and the systems followed vary from bank to bank. Some banks account for repo as an outright sale and then outright investment on repurchases in their books at a different rate whereas others account for the repo as a lending and borrowing transaction, and treat earnings and costs as interest income and expense.