Before you let your thoughts run wild, let me tell you I am not talking about the winding down of FT’s schemes as a fraud, just joining some dots.

It was in 1993 when I met R H Patil the founder of NSE who said “we will develop a robust debt market in 3 years time”. Well even if he meant 30, it has not happened. I do not even know who was supposed to develop it – Nse, Sebi, or RBI. I guess it has to be the RBI under present circumstances.

In 1991, HM used to tell small co-operative banks “I will buy gilts on your behalf” – that is because the minimum size of the deal used to be Rs. 5 crores. Even today that has not changed. So HM, and then Ketan Parekh, then Home Trade,…all of them used this as a ploy. Sad that the debt market regulator – RBI – did not learn. Well there are many vested interests – the State governments, the Primary dealers, the secondary dealers, the bank treasury teams etc. An inefficient system allows everybody to make some money on the sly.

Now take the Equity market – whether I want to buy 1 share of infosys of 100,000 shares, I still go to the same MARKET. The market does a great price discovery for me and gets me the best price.

If we had a great WDM and RDM – wholesale and retail debt market, Santosh Kamath of Franklin Templeton would have found a ready market for all his bonds / debentures.

Are markets so difficult to create? I had suggested to RHPatil that he should find a way to list all the national savings certificates, Indira vikas patra, Kisan vikas patra – and that would have kicked off the Retail business.

Listing all Gilts, Psu bonds, Tier-1 capital of banks, bank bonds, treasury bills, – this is about 80% of the market, AND ALL with zero default risk.

Next they could list all corporate bonds – AAA and all above investment grade.

Then they could have allowed the wholesale and retail participants in. It would have dramatically reduced bank NPA. Only if the gov had forced banks to only buy debentures. Imagine banks below a particular level being forced to only buy debentures in the secondary market. Thus if an Edelweiss debenture was available at Rs. 70, I may no mind picking up debentures worth say Rs. 20L – hoping to make some redemption gains. I may have picked up Vedanta at a 24% interest yield.

Let me just explain. If all the potato manufacturers in India sold in one market, and all of us bought in that market, there would be one price for potato. Today the farmer gets Rs. 3 a kg and we end up paying Rs. 30 a kg. Too much is lost to intermediation.

Is it easy to create a market? No. Of course not. This government is surely not capable of some such creation. So we will have to wait for some government with some depth.

Till then, we let RBI think that RBI controls interest rates. Market forces be damned.

If Santosh Kamath had a listed market we would have known that he ran mid caps and small caps. We sadly thought he was running a gilt portfolio.

Most of us have lost 40% in our mid-cap portfolio, but will we take a 5% hair cut in our debt funds? I mean the small cap and mid-cap debt funds? Well we would hate to, but if we had a MTM on a daily basis we would have accepted a higher standard deviation along with a higher interest rate.

Imagine how a good underlying market would have created a great ETF playground.

Oh shit!! the biggest enemy of a good debt market would be the Mutual funds themselves !! Hey bhagwan mein kya bol gaya…