Figure 4: Basis between index tenors for a three year £ swap  Source: Bloomberg data and Bank calculations  LIBOR transition, if executed effectively, offers the prospect of concentrating the liquidity currently split across these multiple curves into a single SONIA curve, providing a materially deeper, more transparent and less complex single market in which to hedge interest rate risk. Unlike some other currencies involved in LIBOR transition, sterling starts with the distinct advantage of already having a liquid, well-traded SONIA curve at shorter maturities based on OIS swaps, supplemented by three futures contracts which also settle on realised compounded SONIA. Rolling the liquidity currently in term LIBOR curves into this curve would further improve price formation at the short end and, importantly, improve the definition of the curve at longer maturities too.
With regard to the operation of the secondary market of government bonds, the Bank of Thailand is currently working on the promotion of a full-fledged primary dealership system to facilitate the conduct of open market operations. We aim for the primary dealers to eventually provide marketmaking functions for both government and private securities. The operation of primary dealers or counterparties of the central bank will be complemented, should market participants deem it useful, by the presence of inter-dealer brokers, who can assist in ensuring continuous two-way quotation, as well as helping to preserve the anonymity of transactions or positions held by a market participant. In August 1999, we appointed 9 counterparties, which comprised eight banks and one securities firm. Starting 19 January 2000, the Bank of Thailand also began trading outright with the 9 counterparties. This operation serves as a monetary policy instrument as well as the mechanism to promote the development of the secondary bond trading. At this early stage, the outright operations will be conducted primarily in the benchmark issues or those with potential to become benchmark issues. These selected counterparties are expected, ultimately, to become primary dealers and we are currently working on putting the right incentives to ensure that appropriate rights and obligations be accorded to these primary dealers. The third area I would briefly touch on is infrastructure issues. Here, work is ongoing to promote a fully automated system of delivery versus payment (DVP) settlement, information disclosure, and instituting appropriate code of conduct on market participants.