Government Securities Transactions: New Guidelines for Primary Members and Gilt Account Holders
The Reserve Bank of India (RBI) has introduced new guidelines for transactions in government securities between a Primary Member (PM) of the Negotiated Dealing System – Order Matching (NDS-OM) and its Gilt Account Holder (GAH), as well as between two GAHs of the same PM. These changes aim to enhance transparency and efficiency in the government securities market.
Current Transaction System
Transactions in government securities within the Over-the-Counter (OTC) market occur through two channels:
NDS-OM Platform: Securities are bought and sold on the Order Matching segment or the Request for Quote (RFQ) segment of NDS-OM.
Bilateral Negotiations: Transactions are negotiated outside the system and subsequently reported on NDS-OM.
All transactions matched on NDS-OM are cleared and settled through the Clearing Corporation of India Limited (CCIL), which acts as a Central Counterparty (CCP) for these transactions.
Key Changes in Regulations
Previously, transactions between a PM and its own GAH, or between two GAHs of the same PM, were not allowed on NDS-OM. Additionally, such transactions were not cleared and settled through CCIL.
After a review and feedback from stakeholders, RBI has introduced the following changes:
Matching on NDS-OM: Transactions between a PM and its own GAH, or between two GAHs of the same PM, are now permitted on both the Order Matching segment and the RFQ segment of NDS-OM. These transactions will be cleared and settled through CCIL.
Optional Clearing for Bilateral Transactions: Transactions that are bilaterally negotiated and reported to NDS-OM may also opt for clearing and settlement through CCIL.
Settlement Failures and Penalties
Failure to settle these transactions will be classified as ‘SGL bouncing’, as per the Government Securities Act, 2006. This is subject to penalties outlined in the RBI circular dated July 14, 2010, which has been revised periodically.
Operational Guidelines and Legal Framework
The CCIL will issue detailed operational guidelines for the implementation of these changes. These directions are issued under Section 45W of the RBI Act, 1934, and are subject to compliance with other applicable laws.
Conclusion
The revised framework enhances the flexibility, efficiency, and transparency of government securities transactions. It strengthens market operations while ensuring regulatory compliance and risk mitigation.
