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Informist, Thursday, Jun. 25, 2026

 

--RBI releases draft master direction on secondary market deals in govt bonds 

--RBI seeks views on draft norms on secondary mkt deals in g-sec by Jul 17 

NEW DELHI – The Reserve Bank of India on Thursday issued a draft master direction on secondary market transactions in government securities. Under the draft directions, the RBI has proposed that any person resident in India, including but not limited to firms, companies, corporate bodies, institutions, state governments, Union Territories with legislature, provident funds, pension funds, trusts, Hindu Undivided Family and individuals, is eligible to undertake secondary market transactions in government securities.

 

Further, any person resident outside India, permitted to invest in securities under the RBI's foreign exchange management debt instruments regulations, is also proposed to be eligible.

 

The RBI has invited feedback on the draft norms by Jul. 17. The regulator proposed that the new master direction take immediate effect upon finalisation.

 

"With an objective to enhance clarity, streamline compliance, and provide a single point of reference to all stakeholders, the draft directions consolidate extant instructions for undertaking secondary market transactions in government securities," the RBI said in a release. Currently, secondary market trades in the government securities market, many of which the master direction proposes to supersede.

 

Direct members of the RBI's Negotiated Dealing System – Order Matching platform can undertake transactions using the platform hosted by the Clearing Corp. of India Ltd. or bilaterally with other eligible participants, the RBI proposed. Indirect members of the platform can trade on NDS-OM via web access provided by a direct member or place orders with a direct member. Indirect members may also trade government securities bilaterally, according to the draft.

 

Holders of Retail Direct Gilt Accounts may transact in accordance with the rules of the RBI's Retail Direct Scheme. Individuals with demat accounts at banks that are direct members of NDS-OM can participate in the bond trading platform through their banks, in the same way as indirect members of the NDS-OM platform can, the draft norms said. Individuals with demat accounts with Securities and Exchange Board of India-registered depository can also trade on the over-the-counter NDS-OM through the stock broker connect facility.

 

Direct members of NDS-OM must provide their constituent gilt account holders who are not individuals with web access to the platform. Individual holders of such accounts and demat account holders can be provided web access via direct members of NDS-OM based on specific requests, the RBI proposed.

 

Government securities contracted for outright purchase, purchase or repurchase under a repo transaction with the RBI, or due for receipt in a government securities transaction, can only be sold if those contracts were entered prior to the sale. Other caveats the RBI proposed include that the contract must be with the RBI or the transaction be guaranteed by CCIL, and that the sale is contracted to settle in the same or later settlement cycle as the purchase, repo, or lending trade.

 

Only entities allowed to short-sell, including banks and primary dealers, are permitted to sell government securities acquired through the repo trade outright. Government securities allotted in a primary auction can be sold on the day of the allotment and resold, subject to other features of the proposed norms, the RBI said. 

 

"The Reserve Bank may call for any information or statement or seek any clarification, which in the opinion of the Reserve Bank is necessary, from eligible participants involved in secondary market transactions in government securities," the draft master direction said. "Such eligible participants shall furnish such information, statement, or clarification within such time, and in the manner, as specified by the Reserve Bank, from time to time."

 

The master directions largely compile prior norms of reporting and settling government security trades. Transactions not conducted on the NDS-OM platform shall be reported to the platform within 15 minutes of execution, and foreign portfolio investors shall be guided by the master direction on non-resident investment in debt, the draft norms said.

 

Bilateral trades accessing NDS-OM shall be reported by either the direct member or the indirect member. Trades between a direct member and its own gilt account holder, or between two gilt account holders of a direct member, shall be reported by the direct member. Participants shall exchange counterparty confirmation for all government securities transactions not matched on NDS-OM, the proposed directions said. 

 

Settlement of government securities will be conducted on a 'T+1' basis through the delivery-versus-payment mode on CCIL or any other clearing agency. Bilateral trades can be optionally cleared and settled through CCIL, the draft said. The direct member of NDS-OM will be responsible for settling the gilt and demat accounts of its holders. Direct members will carry out the securities leg of the transaction through their Subsidiary General Ledger accounts, with indirect members going through the direct members' Constituent Subsidiary General Ledger account.

 

"The funds leg of transactions undertaken by a direct member of NDS-OM shall settle through the current account of the direct member maintained with the Reserve Bank or through its Designated Settlement Bank," the draft master direction said. "The funds leg of transactions undertaken by an indirect member of NDS-OM shall settle through the current account of its direct member maintained with the Reserve Bank."

 

The over-the-counter bond market timings remain unchanged from 0900 IST to 1700 IST. Timings of trades on recognised stock exchanges will be determined by SEBI in consultation with the RBI, according to the proposed norms. Stock exchanges will give returns, documents and other information on government securities transactions to the RBI. 

 

All eligible participants in the government securities market can participate in "When Issued" trades. Banks and primary dealers may hold a net short position after the end of the 'When Issued' window, while other entities must close their net short position by the end of trade on the day the underlying bond is issued. Banks and primary dealers can hold both long and short positions of up to 25% of the notified amount of the bond at auction. Others can hold long positions of up to 25% of the notified amount, but a maximum short position of only 10% of the outstanding. 'When issued' transactions will only take place on NDS-OM, the draft master direction said. 

 

Scheduled commercial banks, urban co-operative banks and standalone primary dealers can undertake short sales, along with any other regulated entity allowed by its financial sector regulator. A single entity can have short sales of up to 2% of notified liquid government securities or INR 5 billion, whichever is higher. Other government securities can be short-sold up to the higher of 1% of their outstanding amount or INR 2.5 billion. A short position in a security that becomes illiquid while being held does not need to be reduced immediately, though fresh sales must comply with rules on illiquid bonds.

 

"A scheduled commercial bank may treat the sale of a government security held in its investment portfolio as a short sale (‘notional' short sale). For the purpose of these directions, such notional short sales shall be treated as short sale transactions and shall comply with the instructions laid down in these directions," the RBI said. 

 

Short sales will be reflected in a specifically created Securities Short Sold Account, the draft norms said. These transactions and related cover transactions will be accounted for in the held-for-trading portfolio and marked to market daily. A bank covering a notional short sale by delivering securities from its own portfolio shall account for the transaction as an internal borrowing. The securities so borrowed must be brought back without any change in book value, the proposal said.   End

 

Reported by Aaryan Khanna and Pratiksha

Edited by Saji George Titus

 

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