Banks and insurance companies are currently required to execute all trades through brokers, depriving them of anonymity in their market positions.

According to finance ministry officials, the high-level co-ordination committee on capital markets headed by Reserve Bank of India Governor Bimal Jalan, felt that banks and insurance companies with sound treasury operations should be allowed to trade in securities themselves.

Market sources said large public sector banks and state-owned insurance companies had long been demanding stock exchange membership.

After the 1991 stock scam, the government imposed restrictions on banks on the volume of trade they could execute through a single broker. The RBI does not allow banks to operate more than 5 per cent of their total trade through a single broker.

Banks have to engage the services of dozens of brokers, pay them brokerage and advisory fees, thus adding to their cost of fund management.

With proper regulatory systems and safeguards in place, the RBI would soon issue a circular allowing banks to acquire limited memberships in bourses like the Bombay Stock Exchange and the National Stock Exchange, the sources said.

The Insurance Regulatory and Development Authority will also issue a circular allowing insurance firms to trade in equity and government securities on their own.

The officials said banks and insurance companies would also be allowed to directly participate in the derivatives market once they were members of stock exchanges.

They will be able to hedge for themselves by taking suitable positions in index futures and individual stock futures. However, they would not be allowed to trade on behalf of third-party clients, the officials pointed out.