Bombay Stock Exchange is all set to kick off retail trading in government securities on Thursday after Finance Minister Jaswant Singh does the honours at the formal launch.

National Stock Exchange is expected to take a few days to do so. But the big question in the market today is: will small investors flock to the trading ring to put money into the benchmark 10-year 9.81 per cent 2013 gilt which has seen a roller-coaster ride in recent times?

If the feedback from brokers is any indication, retailing of gilts has not enthused small investors. The government debt market will not be able to steal the thunder from the equity market, at least in the near future.

"Where is the volatility in the debt market? How many investors can put in large sums for a 20-30 paise movement in government paper," asks a broker.

Dhawal Dalal, fund manager with DSP Merrill Lynch Mutual Fund, said that it would take a while for the market to gain some knowledge about the product. "It might remain restricted to existing market participants for the time being and I do not see much retail participation coming in."

Within the broking community, the action is expected to be largely confined to institutional brokerages which may have the necessary background and research capabilities.

However, brokers are not complaining as it enables them to offer their clients a diversified product profile, with equity, mutual funds and now government securities.

Sunil Singhania, director, Advani Share Brokers, feels that small retail investors will not participate in the G-Sec market as he is better off investing in fixed deposit of banks which offer almost similar returns.

Moreover, high transaction costs will prevent small investors from entering the market. G-Sec yields fluctuate on a daily basis and hence it is difficult for small investors to keep track.

However, investors with large holding capacity for longer periods are likely to enter the market, he pointed out.

"It would take some time for interest to percolate to retail investors as they have to be convinced about the product. However, it gives us the chance to offer fixed income products to our clients," pointed out Motilal Oswal, chairman and managing director, Motilal Oswal Securities.

Going by the draft scheme prepared by the Securities and Exchange Board of India and the Reserve Bank of India, trading will be along the same lines as in the case of equity and will have the same elements. That is, it would be an order driven system with anonymous trade matching.

It would follow a T+3 rolling settlement with intra-day multi-lateral netting of obligations and settlement obligations by all clearing members through the exchange's clearing corporation or clearing house. Settlements of securities will be done through the depositories.

For equity brokers wanting to participate in G-Sec trading, some fine-tuning of their capital requirements will be required but this is yet to be specified by Sebi. Currently, the capital requirement for brokers in the equity market is Rs 30 lakh (Rs 3 million) for BSE and Rs 1 crore for the NSE.